Alternative lenders versus banks: which is right for your business loan?

Two different business models

Banks fund loans largely from deposits and are tightly regulated. They lend enormous amounts at low margins, which only works if losses are kept very low. The way banks keep losses low is through strict, standardised credit policies applied consistently across thousands of applications. Alternative lenders fund loans from investors, funds or their own capital. They set their own policies, take on situations banks avoid, and price for that risk.

Neither model is better in general. Each is better for a particular kind of borrower.

Where banks win

If your business has two or more years of trading, up-to-date tax returns and financial statements, a clean credit file, no tax arrears and time to wait, a bank will usually offer the lowest-cost finance. Banks also offer a broad range of products, from transaction accounts to merchant facilities, and a long relationship can make future borrowing easier.

Where alternative lenders win

Alternative lenders are built for the situations bank rules exclude. A business with an ATO debt, a director with a default from years ago, a company eight months old, a seasonal business that looks weak in its quiet quarter, a builder waiting on progress claims, or an owner who needs funds within days rather than weeks. Because a person makes the decision, context counts: the reason for a default, the plan for a tax debt, the experience behind a new ABN.

Speed and paperwork

Banks typically require tax returns, financial statements and sometimes forecasts, and the process can take weeks. Many alternative lenders work from bank statements, BAS and identification, and decisions can come within a day for straightforward unsecured requests. Property-secured alternative loans can fund in as little as 24 hours on straightforward deals once documents are signed, and our property-secured loans need no valuation before approval.

Cost and how to compare it

Alternative finance generally costs more than bank finance, sometimes significantly. Compare offers on total dollars repaid rather than headline rates or factors, and weigh that cost against what the money achieves. Clearing a tax debt before it becomes a director penalty, or securing a contract that would otherwise be lost, can easily justify a higher price for a short period.

The bridge back to the bank

A very common pattern is to use an alternative lender to solve an immediate problem, then refinance to a bank once the business qualifies. The tax debt is cleared, the file improves, returns are lodged, and twelve to twenty-four months later the bank says yes. When the bank refinance settles, it repays the alternative loan. Planning that path from the start keeps the cost of alternative finance contained.

Questions to decide where to start

Is your credit file clean? Are your tax returns and BAS up to date? Do you have any ATO arrears? Have you traded for at least two years? Do you have weeks rather than days? If the answer to all of these is yes, start with your bank. If any answer is no, an alternative lender may save you a decline and a credit enquiry. The Loan Route Finder gives a quick read.

An illustrative example

A family-owned engineering business with a long bank relationship carried an ATO balance after a slow year. The bank declined a request for a new machine. An alternative lender funded the machine and cleared the tax via a second mortgage. Eighteen months later, with tax current and trading strong, the bank refinanced the loan.

Find out which fits you

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