Non-bank lending is the facilitation of debt between two or more parties, where the lender is not a conventional bank.
Non-bank lenders also only lend to commercial or business borrowers, who are using the funds for property/business dealings.
“Horses for Courses” as is often said. Bank and non-bank lenders have always existed side-by-side, with different borrowers requiring different solutions. Some situations warrant bank lending, whilst others require a more outside-the-box solution – hence non-bank lenders.
Non-bank lenders offer solutions that most conventional banks simply can’t. Whilst there are a myriad of reasons why borrowers choose non-banks over conventional banks, the most common include better lending terms such as:
For smart borrowers, there’s more to debt than simply “what’s the rate?”. The true cost of debt is a much more all-encompassing calculation than simply the interest rate. In fact, in many cases, a property owner/developer is better off with a non-bank solution when compared to a bank – even though the bank’s rates are lower on face-value.
What’s proving increasingly popular with non-bank lending for property developers is the cost-saving that non-bank finance offers on projects. In terms of interest rates, it’s almost always the case that non-bank lenders charge a higher interest rate than banks. However, much of the time, developers are better off using non-bank lending, as a development’s feasibility does not rely entirely on the rate alone. Rather, the trust cost of debt needs to take into consideration the following: