Nonbank lenders (including non-bank mortgage lenders) are financial institutions that aren't banks or credit unions.
Some well-known examples of non-bank lenders include Quicken Loans, Freedom Mortgage Company, Brookings Institution, Green Sky, and Time Investment Company (full disclosure: That’s us!).
Banks and credit unions are the primary sources of what we call “traditional financing.” They tend to have lots of capital, thanks to all their customers with checking and savings accounts. But outside of conforming mortgages, which they can quickly sell upstream to Fannie Mae and Freddie Mac, they typically have tight credit standards on personal loans and small business loans, and similar financial products.
Banks and credit unions are subject to strict regulation, and their investors tend to prefer borrowers with high credit scores and proven collateral. But people with shakier credit or less collateral tend to have a much harder time qualifying for traditional financing.
This is where non-bank lenders and alternative lending platforms have an advantage: They aren’t as strictly regulated. And investors tend to have a greater willingness to do business with people who can’t qualify for traditional bank financing. They often receive funds from private equity firms rather than traditional banks. As a financial institution, they can take on a lot more Alt-A and subprime credit risk. In fact, some investors prefer the riskier borrowers, because they can charge a higher interest rate to compensate themselves for the risk.
Non-bank lenders and other alternative financial institutions are typically more flexible with borrowers and have greater freedom to tailor their offerings to your specific industry and customer type compared to other lenders. They can offer a wider variety of loan products to small businesses and their customers and can be more flexible with loan terms.
They often (but not always) have higher interest rates than traditional bank lenders. But non-bank lenders also frequently have lower interest rates and higher limits than those available through credit cards.
Benefits of Non-Bank Financing Over Traditional Lenders
Although consumer financing covers a wide range of loans, it boils down to helping a small business with finance and increasing its customers' purchasing power.
Benefits of Offering Customer Financing Through Non-Bank Lenders
Partnering with a good non-bank lender who specializes in your industry can offer these key benefits:
- Low-Interest Rates. By offering consumer financing via non-bank lenders, customers can usually enjoy better interest rates. Being in private ownership provides such institutions more flexibility and the ability to be more competitive with banks.
- More-Flexible Terms and Credit Criteria Than Traditional Lenders. Around 15% of customers struggle with a bad credit score. While a bad credit score is the most common reason, banks can also reject a user merely because it's not profitable for them (especially for mortgage loans).
- Just like it's easier to get traditional loans than government-backed loans, Nonbanks are more flexible with criteria than banks. While standards differ between nonbanks, the user is more likely to get a loan from non-bank lenders.
- Faster Application Process & Access. Additionally, nonbanks usually have an online portal that lets customers fill out online applications right at the sales desk, making it much faster to apply and get funds.
The difference: The borrower can fill out their online applications and get an instant credit decision right there at the closing table. They won't have to jump through endless hoops with their bank or credit union for weeks. And as the business owner, you can receive your money from the nonbank lender or alternative lenders right away.
Connecting With the Right Non-Bank Lender for You
Even if you already have a good relationship with a bank or credit union, it’s a good idea to have an alternative lending service or an alternative online lending platform in your corner as well. Your non-bank lender can be your ‘ace in the hole,’ helping you get more deals approved – especially for customers with less-than-stellar credit, or who don’t quite meet the traditional lending criteria.
Over the last couple of years, a lot of good customers have taken some dings to their credit scores. They may not be well served by traditional lenders, who will charge higher interest rates on their loans, or deny them outright. They don't have the cash to pay upfront, but they can get much better service on their loans from non-bank lenders. And if your business offers them a way to provide realistic, affordable monthly payments that they can easily handle on their income, you can move into this market and do very well.
If you’re a contractor, distributor, merchant, or vendor, feel free to leave your information on our inquiry form and one of our reps will contact you promptly.
Don’t lose another deal because of financing!