Big vs Small Lenders

Sometimes we get asked if we are a bank or have any partnership with any banks. The truth is that our business was built to adapt banking to small medium-sized businesses (to some extent at least), and although we have partnerships with banks we have a very different approach to the market and small businesses. So having said that, what is better for you as a small business owner? We will break down what we think are the biggest categories for financiers and select a winner in each of them:

Flexibility:

When it comes to banks you got different tiers (Tier 1 are the big 4 banks, tier 2 are smaller yet big enough banks, tier 3 is usually sister banks for the bigger two just smaller versions), each of which have a different flexibility level when it comes to their customer service, application processes, and accessibility. However, when comparing big lenders vs small lenders (such as nimble, Moula, Avila Financial, etc…), Big Lenders will always fall short on flexibility as they have more policies, procedures, and regulations restricting them from being fully flexible. So flexibility it is a win for the small lender, whether it is for credit card application, consulting or any other financing process the small lenders will be able to be more flexible.

Resources:

With big banks and institutions come a level of resources that not a lot of small lenders have, this translates into what should be a lot better technologies and product accessibility. Unfortunately, this is not always right, big banks tend to use their resources to provide financial products to large corporates and not a lot to the SME industry, the reason why is simple. Dealing with corporates is less risky than handling the daily hustle of small and medium-sized businesses. So in essence, although bigger institutions have more resources this doesn’t benefit small businesses.

Fees:

Let’s take commonwealth bank as an example, they just got slammed by the royal commission because of their fee structure. For banks is not about the interest rate as they lend to relatively low-interest rates (well, some do), however it is all about the fees that they can charge you. Not necessarily even deserved, sometimes they are fees that the bank itself doesn’t know how to explain. Most smaller lenders try to keep it simple, maybe an establishment fee and a minimum amount to be charged a year, apart from that there shouldn’t be much to it. If you consider us at Avila Financial Solutions we actually don’t charge either an establishment fee nor lock you on a minimum amount to be used a year, our rates and charges are all consolidated into our financing rate.

Understanding of clients business:

It is unfair to say that all big lenders do not put effort on knowing the business or industry of their clients, but unfortunately, it is true, especially in the small business arena. For them SMEs can be just a quick way to make a dollar, they don’t expect us to make it past 3 years, so why bother getting to know our business? Most smaller lenders tend to be more understanding and actually some of the people you might work with will be entrepreneurs just like you. Having had previous businesses and fully aware of the challenges that take to grow a small business.

Mortgages, business loans, and personal loans:

Big lenders serve as a great tool to finance big things, such as houses (Mortgages). Their processes, procedures, and regulations make them fit for this industry. However when you step into business loans it is a completely different story, the same regulations and procedures can actually hold their financing appetite against small and medium-sized business seeking capital, that is why most entrepreneurs tend to either raise capital through shares or personal loans. Now, if you are seeking a business loan then the alternative and smaller lenders are the way to go. Personal loans are tricky products, most big and smaller lenders are quite happy to give money against people, however big lenders tend to be able to do it at cheaper rates.