Exploring Alternative Business Funding Options for Small Businesses
Bank lending to small businesses has seen a decline of nine per cent year-on-year, with the total amount dropping to £59.2 billion in 2023. This decrease can be attributed to high borrowing costs and economic uncertainties, leaving small businesses seeking alternative funding options to support their growth.
The British Business Bank report highlights that the funding gap left by traditional banks is being filled by alternative lenders and private debt fund providers. Products like asset finance have seen a growth of 7 per cent, reaching £23.5 billion in 2023.
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Exploring Alternative Business Funding Options
Invoice Financing
For businesses that engage in selling to other businesses on credit terms, invoice financing can be a valuable tool to manage cash flow. This alternative funding method involves a lender paying you promptly for your outstanding invoices, usually within 24 hours, and deducting a fee when the payment is received.
While invoice financing can accelerate business growth, it relies on your clients eventually settling their dues. It’s important to note that this option is only available for B2B services, where customers are other businesses and not the general public.
There are two types of invoice finance: invoice factoring and invoice discounting. Invoice factoring involves the finance provider collecting payment directly from your customers, while invoice discounting allows your customers to pay you as usual.
Alternative Loan and Debt Providers
Business loans can provide a much-needed boost for small businesses looking to purchase stock, equipment, or assets. These loans typically have repayment periods ranging from one to 10 years, with fixed interest rates agreed upon before borrowing.
Secured business loans require collateral as security, while unsecured loans are easier to obtain but may come with higher interest rates. With traditional banks becoming more cautious in lending, alternative loan providers have gained popularity, often offering approval within 24 hours.
Merchant Cash Advance
Merchant cash advance offers a swift funding option for businesses that receive card payments. Unlike traditional loans, there are no fixed monthly payments or interest rates. Instead, the provider collects a percentage of future card revenue, adjusting the repayment based on your monthly sales.
This option can provide quick access to funds, with cash becoming available within 24 hours, compared to the average three business days for card payments to clear through a processor.
Peer-to-Peer Lending
Peer-to-peer lending connects borrowers with individual lenders through online platforms, offering quick and flexible loans at competitive rates. Borrowers disclose their funding requirements and repayment terms, with the platform matching them with suitable lenders after conducting credit checks.
One advantage of peer-to-peer lending is the rapid decision-making process, with funds becoming available in a matter of days once approved.
Exploring Various Business Funding Providers
Below are some reputable providers offering alternative business funding options:
Invoice Finance Providers
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Loan and Debt Providers
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Merchant Cash Advance Providers
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Peer-to-Peer Lending Providers
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Further Reading
Explore more resources on alternative business funding and financial solutions:
- Raising start-up capital – who to turn to?
- Small business startup funding guide
- Small business finance – the complete guide
If you are looking for finance options, SmallBusiness.co.uk partners with trusted lenders to help you find the best business funding deals. Visit their website for more information.