5 Differences Between Borrowing from Big 4 vs Non-Bank Lenders
The gap between the Big 4 and the non-bank lenders has been widening in recent years, especially who they serve.
For many small and medium-sized enterprises (SMEs) looking to borrow funds, you should know about the differences in cost, speed, flexibility and approval likelihood between Australia’s Big 4 banks and non-bank lenders.
Empirical Legal helps SMEs navigate funding options with clear, practical advice. We guide you through the pros, cons and fine print so you can secure finance on terms that work for your business.
Summary
Know who different lenders target.
Big 4 banks focus on large corporates and property-secured loans, while non-bank lenders serve smaller, sometimes referred to as ‘riskier’ borrowers and sectors that banks often overlook.Compare interest rates and total borrowing costs.
Non-bank loans can be 2-6 percentage points more expensive than bank products, with some short-term options exceeding 15% once fees are included.Factor in speed and repayment flexibility.
Non-bank lenders can approve loans in as little as 24-72 hours and often offer tailored repayment terms, while Big 4 processes are slower and more standardised.Understand security and covenant requirements.
Banks typically demand property security and strict covenants, whereas non-banks may lend unsecured or use alternative assets but can impose stronger enforcement rights.Be aware of regulatory differences.
Big 4 banks face tight APRA and ASIC oversight, while non-banks have more flexibility in product design and pricing but fewer prudential protections for borrowers.
1. Who they lend to
The Big 4, ANZ, CBA, NAB and Westpac, dominate overall business lending. They hold around 75% of total business loans in Australia (RBA, Financial Stability Risks from Non-bank Financial Intermediation in Australia). However, their loan books are heavily weighted towards large corporates and property-secured lending.
Non-bank lenders have carved out a niche with smaller, often riskier borrowers and sectors underserved by the major banks. For example, non-banks account for only 8% of total business credit but in segments like unsecured working capital loans under $250,000, their share can exceed 40% (RBA, Financial Stability Risks from Non-bank Financial Intermediation in Australia).
2. Interest rates and cost of capital
In a publication released by the Reserve Bank of Australia (RBA) on the Financial Stability Risks from Non-bank Financial Intermediation in Australia, non-bank business loans typically cost 2-6 percentage points more than equivalent Big 4 products. This reflects both the higher risk profile of their borrowers and the higher cost of funds without access to cheap customer deposits.
In some short-term products, effective annualised interest rates can exceed 15% once fees are included. That’s compared to the average 7.5%-9% range for Big 4 variable-rate SME loans in early 2024.
Typical interest rate ranges (SME loans, early 2024)
Lender type: Big 4 Banks
Secured loans → 6.5%-8.5%
Unsecured loans → 7.5%-9.5%
Short-term working capital → 9%-12%
Lender type: Non-banks
Secured loans → 8%-12%
Unsecured loans → 10%-15%
Short-term working capital → 12%-20%+
Source: RBA, Financial Stability Risks from Non-bank Financial Intermediation in Australia
3. Speed and flexibility
One of the biggest draws of non-bank lenders is speed. Loan approvals can be as fast as 24-72 hours with minimal documentation for smaller amounts. Big 4 approvals often take weeks, especially where credit assessment is complex or security valuations are needed.
Non-banks also tend to offer more flexible repayment schedules, seasonal payment options for agriculture and interest-only periods for cashflow management. Big 4 products are generally more standardised, with less scope for tailoring.
4. Security and covenants
Big 4 banks usually require property or other tangible security, even for smaller loans. They also impose covenants, financial performance tests like debt-service coverage ratios, that can trigger default if breached.
Non-banks are more willing to lend unsecured or against non-traditional security such as invoices, equipment or future card sales. However, they may include strong enforcement rights, including the ability to appoint receivers without going to court.
Common security approaches
Feature: Property security
Big 4 banks → Almost always required
Non-bank lenders → Often optional
Feature: Unsecured lending
Big 4 banks → Rare, higher pricing
Non-bank lenders → Common, especially <$250k loans
Feature: Alternative security types
Big 4 banks → Limited use
Non-bank lenders → Invoice finance, asset-backed
Feature: Convenant flexibility
Big 4 banks → Low
Non-bank lenders → Medium to high
5. Regulation and oversight
Big 4 banks are heavily regulated by the Australian Prudential Regulation Authority (APRA) and Australian Securities and Investment Commission (ASIC), with strict capital requirements, conduct rules and continuous supervision. Non-bank lenders are generally overseen by ASIC but not APRA (unless they take deposits, which is rare). That means they have more freedom in product design and pricing but also fewer prudential safeguards.
For wholesale clients, non-banks operate outside standard consumer lending protections, which puts more responsibility on the borrower to review and understand the contract. The RBA notes that as non-bank market share grows, regulators are watching closely for any signs of systemic risk.
Key takeaways for SMEs
Big 4 banks usually offer lower rates and more stability but can be slower and stricter on security.
Non-banks move faster, are more flexible and can serve borrowers who don’t fit Big 4 credit criteria but usually at a higher cost.
Both options have their place. The right choice depends on your funding urgency, risk profile and ability to offer security.
Empirical Legal is a corporate advisory and technology law firm for startups, scaleups and SMEs.
We combine legal, technology, and business experience and expertise to deliver practical, actionable advice and solutions.
If you’re weighing up bank vs non-bank lending, Empirical Legal can help you compare offers, negotiate better terms and ensure you understand every clause before you sign.
Reach out to Empirical Legal today.