Bank vs Non-Bank Business Lenders: How They Differ, Who Regulates Them, and When Each One Fits

Ten years ago, a business that couldn't get a loan from its bank had few places to go. Today, non-bank lenders write a large share of Australia's small business, property and cash flow lending. Some are listed companies, some are backed by global investment funds, and some are small specialists that do one thing well.

The choice between a bank and a non-bank isn't about good and bad. They're built differently, so they suit different situations. Knowing how they differ helps you pick the right one, and avoid paying non-bank prices for a loan a bank would have written. For an overview of the products themselves, see non-bank lending and cash flow finance for SMEs.

The Core Difference: Where the Money Comes From

Banks fund most of their lending from customer deposits, which are cheap and stable. In return, they're tightly regulated by APRA, which sets how much capital they must hold against every loan. Riskier loans need more capital, so banks have a strong incentive to stick to lower-risk, well-secured lending.

Non-bank lenders don't take deposits. They fund their lending from:

• Warehouse facilities. Lines of credit from banks or large investors, secured on the non-bank's loan book.
• Securitisation. Bundling loans together and selling them to investors as bonds.
• Private credit funds. Pools of money from super funds, family offices, wealthy investors and international managers, lent directly to businesses. See private credit for mid-market businesses.
• Their own balance sheet. Equity from shareholders, common for smaller specialist lenders.

That funding costs more than deposits, so non-banks charge more. But it also frees them from bank capital rules, so they can take on loans a bank would decline, and make decisions faster.

How They Compare

Who Regulates Non-Bank Lenders?

Non-bank lenders aren't authorised deposit-taking institutions, so APRA's prudential rules for banks don't apply to them. That doesn't mean they're unregulated. When you borrow for your business, these protections still apply:

• ASIC Act protections. Lenders can't engage in misleading or deceptive conduct or unconscionable conduct in providing credit. ASIC enforces these rules against banks and non-banks alike.
• Unfair contract terms. Since November 2023, using an unfair term in a standard-form small business contract can attract heavy penalties, not just make the term void. For loans, the protection generally covers small businesses with fewer than 100 employees or turnover under $10 million, where the loan is $5 million or less.
• External dispute resolution. Lenders that are members of the Australian Financial Complaints Authority (AFCA) must accept small business complaints within its limits, which cover credit facilities of up to around $5 million. Ask any lender whether it is an AFCA member before you sign.
• Data reporting. Larger non-bank lenders must report their lending to APRA, which gives regulators visibility over the sector, even though it doesn't set their lending rules.

The protection you lose with a non-bank is mostly indirect: no APRA capital rules, and no banking code of practice unless the lender has signed up to an industry code voluntarily. The legal protections against unfair and misleading conduct remain. What matters most is reading the contract, especially default, fee and early repayment clauses.

One more point: the National Consumer Credit Protection Act, with its responsible lending rules, generally doesn't apply to credit used mainly for business purposes. That's true of banks and non-banks alike, and it's why lenders ask you to sign a business purpose declaration.

When a Bank Is the Right Choice

• Your business has two or more years of profitable financials and a clean ATO position.
• You have good security, such as property, to offer.
• The loan is long-term, such as property, acquisition or term debt.
• Price matters more than speed, and you can wait a few weeks for approval.

When a Non-Bank Is the Right Choice

• Speed. You need funds in days, for a stock purchase, a tax bill or a time-sensitive opportunity.
• Timing. The business is growing fast, but the financials don't show it yet.
• A temporary problem. An ATO debt, a bad year or a credit blemish puts you outside bank policy, but the business is sound. See financing ATO debt.
• Specialised assets. Development sites, stock, receivables or equipment that a bank won't lend against fully.
• Structure. You need a structure a bank won't do, such as interest capitalised during construction or a facility with a lump-sum repayment.

The Best Approach Is Often Both

Many well-run businesses use both. A bank provides the cheap, long-term core debt. A non-bank provides a specialist facility alongside it, such as invoice finance, a short-term bridge or a second-ranking loan for growth. The key is to treat non-bank funding as a tool for a specific job, with a clear plan for how and when you'll move to cheaper finance. See refinancing from non-bank back to the bank.

How We Help

We work with banks and non-bank lenders across our panel of 60+ lenders. That means we can tell you honestly whether a bank will do the deal, and if not, which non-bank will do it best. When non-bank funding is the right answer, we compare price, terms and exit options across several lenders, so you're not taking the first offer. Learn more about how a banking tender works.

Book a free, no-obligation consultation and we'll tell you where your business fits.