Why Non-Bank Lending is On the Rise?

By Ram - Feb 29 2024

A few short years ago, banks were the go-to for lending, particularly business lending. Their massive cash reserves made it possible for businesses to acquire as much money as they needed. But in the recent past, the scales have tipped. Businesses now prefer to get lending from alternative lenders, and this service has been on the rise.

When you talk to business owners, you can see why they have been looking elsewhere for their funding needs. Largely, banks haven’t evolved their financing products or procedures. But that’s just the tip of the iceberg. There are other reasons why non-bank lending has been on the rise, and it is mostly client-centric.

Banks have outdated requirements and procedures

To maintain the high level of security and minimal risk they’ve enjoyed over the years, banks haven’t had to make many changes to the systems that have worked for centuries. But that has been at the expense of efficiency and convenience.

Unlike the non-banking option, loan applications drag on for weeks in banks as they carry out manual verifications, while alternative financiers take a fraction of the time to run the same checks. Ultimately, this means businesses don’t have to wait for as long to get their loans approved, and as you may well know, in business, time is money.

Customers want faster and smoother experiences

Applying for a loan through a bank is a tedious process involving endless back and forth. In many banks, the process isn’t automated and requires the customer to constantly follow up with the bank via phone or, worse, heading down to the branch.

Modern borrowers don’t want to spend all their time travelling to bank branches or spending hours on hold. This is where non-bank lenders have excelled. Providing you with a seamless loan application complete with timelines that allow you to complete the application process and have the loan deposited into your account without leaving your office.

Besides providing efficiency and convenience, non-bank lenders also employ effective security features like secure digital signing technology that allows documents to move faster and complete the process quickly.

Online application submission

Printing and scanning can slow you down as a borrower, but it is also what most banks are known for. Most banks haven’t digitized their loan application process, meaning borrowers have to go to the bank to complete the paperwork.

Many non-bank lenders allow you to complete the application and submit it within minutes, allowing your loan to get approved sooner.

Not only is the process of printing and scanning papers outdated, but it is also time-consuming. Most of the paperwork could end up sitting on a desk for days, waiting to be approved and sent to the next person in line. By providing a smoother application process, non-banking lenders have the advantage and are now attracting more borrowers looking for a leaner and more efficient loan application process.

Banks have very rigid requirements

Banks have maintained strict requirements for anyone applying for a business loan to keep losses low. The long requirements lock out the neediest businesses even when they can pay.

Alternative lenders are more flexible in their requirements. Some of their financing options don’t require a good credit score or operational history. These are factors that would lead to quick rejection from a bank.

By opening up their doors to more businesses and providing flexible loan terms, they have tapped into the untapped market, and now, even businesses that meet the bank’s requirements are more inclined to work with non-bank lenders.

More financing options

Banks need to respond to the evolving financial needs of businesses. On the other hand, non-banking lenders have quickly adapted and evolved, offering various financial solutions that aren’t available in banks.

For instance, we provide cash flow finance and invoice factoring at Key Factors. These options appeal to businesses that want to leverage their current assets for finances instead of taking conventional loans that require them to make monthly payments.

Fast disbursement of funds

When many businesses are applying for a loan, they are in dire straits. This is usually the case unless the business is applying for a loan to finance a planned expansion, in which case they might apply for the loan in advance.

However, businesses with teething and cash flow problems usually need funds quickly after applying for the loans. The lengthy approval and waiting times don’t favour institutions desperately needing money. In some cases, the funds may come in too late.

Non-bank lenders run efficient systems that can get the funds in your account within a few hours or days, depending on the nature of the financing you need, and the amount borrowed. This quick turnaround time makes alternative financing solutions more appealing to businesses, and over time, more and more businesses have turned to such services for their lending solutions.

Closing Remarks

There’s no doubt that banks still dominate the Australian finance market. However, they have lost some ground in the recent past. They will continue to do so against non-bank lenders who have developed more creative and faster ways to meet the lending needs of emerging businesses and modern business owners.


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