Quick answer
Banks are usually the cheapest option for business owners with clean credit, two years of strong financials, standard security and time to wait. Alternative lenders, including non-banks and private lenders, are the better fit when there's bad credit, tax debt, a short history, a loss year, an industry banks avoid, unusual security or a tight deadline. Many businesses use both: alternative finance now, bank finance later.
Key points
- Banks are great: if a bank will fund you on good terms, take it.
- Alternative lenders exist for the files banks can't do, or can't do in time.
- Cost is usually higher with alternative lenders; flexibility and speed are the trade.
- Use alternative money for a specific job, then plan the refinance.
- Keep your bank relationship even when you borrow elsewhere.
We’re an alternative lending specialist, so you might expect this guide to tell you banks are the enemy. It doesn’t. Banks are great. For the right business, at the right time, a bank loan is usually the cheapest, most stable finance you can get, and we’d tell you to take it. The question isn’t which type of lender is better. It’s which one fits the loan you need right now.
What banks do brilliantly
- Price. For low-risk loans with good security, banks are typically the cheapest source of business finance.
- Long terms. Commercial property and term loans can run for many years.
- Relationship. A banker who knows your business can help with transactional banking, merchant facilities, guarantees and more.
- Stability. Large, heavily regulated institutions with deep funding.
If you have clean credit, two or more years of solid financials, a tidy tax position, standard property security and time to wait, start with your bank.
Where banks struggle
Bank lending runs on policy and scorecards designed to keep risk low across very large loan books. That works well for standard files and poorly for anything unusual. Banks commonly decline when there’s:
- A credit event: defaults, judgments, a past insolvency
- An ATO debt or overdue lodgements
- Less than two years of trading
- A loss year on the latest tax return
- An industry on a watch list, such as hospitality, construction or early-stage solar
- Security in a postcode or of a type outside policy
- A deadline measured in days, not weeks
The Reserve Bank has observed that smaller businesses generally find finance harder to obtain than larger ones, and that lenders lean heavily on property security for small business loans. If your file has one of the issues above, a bank no is common, not personal.
What alternative lenders do differently
Alternative lenders, including non-bank lenders and private lenders, write their own rules and assess each file on its merits.
| Banks | Alternative lenders | |
|---|---|---|
| Decision basis | Policy and scorecards | Case-by-case assessment of the story |
| Key documents | Tax returns and financials | Bank statements, security and exit |
| Credit history | Often a hard filter | Considered in context |
| Speed | Weeks is typical | Funding possible in as little as 24 hours once approved, for straightforward files |
| Security | Standard property types | Wider range, assessed case by case |
| Cost | Usually lowest | Usually higher |
| Term | Often long | Often shorter |
A simple test: which do you need?
Ask yourself these five questions:
- Is your credit file clean? If not, and the issues are recent or unpaid, lean alternative.
- Do you have two years of lodged, profitable financials? If not, lean alternative.
- Is your tax position clean? If there’s ATO debt or overdue lodgements, lean alternative.
- Is your security standard? If it’s regional, specialised or not yet available, lean alternative.
- Can you wait several weeks? If not, lean alternative.
If you answered yes to all five, talk to your bank first. If you answered no to one or more, an alternative lender is likely to be a better fit, at least for now. Our difficult loan matcher can help you see which structures fit your particular combination.
The best of both: alternative now, bank later
The most common pattern among our clients isn’t choosing one or the other forever. It’s using each for what it does best:
- Now: an alternative lender solves the immediate problem, such as clearing a tax debt, funding a contract, consolidating short-term loans or bridging a gap.
- Next twelve to twenty-four months: clean repayments, lodged returns and a recovering credit file rebuild the business’s profile.
- Later: a bank or a cheaper lender refinances the alternative loan on better terms.
Planning that exit from the start is what makes alternative finance good value. Agree a term that suits the plan, keep the repayments perfect and keep your financials up to date so you’re ready when the bank’s door opens again.
Keep the bank relationship either way
Even if you borrow elsewhere, there’s usually no reason to move your everyday banking. Keep your accounts, merchant facilities and transactional banking where they work for you. Check your existing loan documents for any conditions about new borrowing or security, and keep your banker informed. A relationship that survives a decline gracefully is one you can come back to.
What to watch with alternative lenders
Alternative lending is a broad market. To protect yourself:
- Compare total cost in dollars, including all fees, not headline figures
- Check early repayment terms, especially if you plan to refinance
- Understand the default clauses and what triggers them
- Read the guarantee carefully if you’re signing one
- Use your own lawyer for property-secured loans
- Be wary of anyone promising guaranteed approval or asking for upfront fees before an offer
- Know your protections: small businesses have unfair contract term protections, and many lenders are members of the Australian Financial Complaints Authority
Questions to ask any lender, bank or not
Whoever you’re talking to, the same questions protect you:
- What is the total amount I’ll repay over the term, in dollars?
- What fees apply, when, and are any charged even if I don’t draw the money?
- Is this loan secured, and over what? Is a personal guarantee required?
- What happens if I repay early, and what does it cost?
- What happens if I miss a repayment, and what are the default charges?
- How long will approval and settlement realistically take?
- Who do I contact if something goes wrong, and is the lender a member of an external dispute resolution scheme?
A good lender, bank or alternative, will answer all of these clearly and in writing.
An illustrative comparison
Two illustrative Melbourne businesses each want $250,000.
Business A is a dental practice with eight years of strong financials, clean credit, no tax debt and a commercial property with a small mortgage. It needs the money in two months for a fit-out. The bank is the natural choice, and will likely offer the lowest cost and longest term.
Business B is a joinery business with a loss year from a builder’s collapse, a $90,000 ATO debt on a payment plan, an old default and a home with equity. It needs the money in ten days to fund a new commercial contract and clear the tax. A private lender with a second mortgage is the natural choice now, with a bank refinance planned after two clean years.
Neither choice is better in general. Each is right for its situation.
Not sure which you need?
If you’ve been to your bank and they’ve said no, you’re in the right place. Start a 60-second enquiry and we’ll tell you honestly whether an alternative lender makes sense, or whether you’d be better off trying another bank. There’s no credit check when you first enquire, your details aren’t sent out to a crowd of lenders, and a real person will call you. Please be accurate about your credit, tax position and deadline on the form; it’s how we point you to the right door first time. See if you qualify.
Frequently asked questions
Are alternative lenders always more expensive than banks?
Usually, yes, for comparable loans, because they take on files with more risk or move faster. But the relevant comparison is often with not getting the money at all, or getting it too late. Compare total dollars and the cost of the problem you're solving.
What's a non-bank lender?
A lender that isn't an authorised deposit-taking institution. Non-banks fund loans through investors, wholesale funding or securitisation instead of customer deposits. They range from large, established lenders to small specialists.
Can I go back to the bank later?
Yes, and many owners do. A period of clean repayments with an alternative lender, combined with improved financials or a repaired credit file, often makes a bank refinance possible within one to two years.
Should I tell my bank I've borrowed elsewhere?
Check your existing loan terms, because some require you to tell the bank about new borrowing or security. Beyond that, keeping your banker informed tends to keep the relationship healthy.
Do alternative lenders offer the same protections?
Business lending is generally regulated differently from consumer lending, whoever the lender is. Small businesses still have protections such as unfair contract term laws, and many lenders belong to an external dispute resolution scheme. Read documents carefully and get advice when you need it.