Business funding: Where to go when the banks say 'no'

Philip Brennan
Manager |
11th April 2016

Raising funds to grow your business, buy equipment, take on new staff or simply stay afloat can be a major challenge for SME business owners. In the UK last year, a massive 50 per cent of start-ups had bank loans rejected.

It's perhaps even more surprising then that 56 per cent of SMEs are unfamiliar with any form of alternative finance and 60 per cent spend less than an hour researching lending providers. A range of alternative finance options are available in the marketplace for businesses.

Invoice finance

Invoice finance is a fast and flexible way to secure loans based on the value of a business’ outstanding invoices to other companies. For a small fee, a network of investors will provide an advance of up to 90 per cent of the invoice value, enabling businesses to access to funds that may not have otherwise have been available for up to 120 days.

Most banks offer this solution, however there are some challenger brands who are very competitive and who offer comparative rates and slick application processes. This can be much more expensive than a bank loan but can plug short term gaps in Cash flow and offer admin support to collect your outstanding invoices.

Asset finance

This option allows businesses to spread the cost of investing in equipment to run their business efficiently. This could range from computer systems, software, new machinery, commercial vehicles, breaking down the payments into more manageable instalments.

This method has less of an impact on business cash flow and can yield tax benefits in some cases. Asset finance can be done in several ways, through leasing, hire purchase and contract hire.

Merchant cash advance

These are a simple form of unsecured funding, which is paid back based on credit and debit card sales, meaning repayments are manageable and mirror business performance.

Approval rates are higher than many other forms of finance and up to one month’s business earnings are available.

Although the product is extremely flexible for a business this can be a lot more expensive than high street loan.

Peer-to-peer lending

This online process pairs businesses looking for loans with investors who have available savings or capital. These loans can be unsecured or secured and would have fixed payments like a standard loan.

While full financial records will have to be submitted, it offers the option to access finance within a matter of days or weeks, rather than months. Rates tend to be competitive if a little more expensive than banks. However, the process of accessing your finance can be a lot easier.

Equity crowdfunding

Equity crowdfunding, an increasingly popular way of securing finance, allows both experienced investors and your regular Joe to provide funding for a business, in return for shares.

While most platforms are ‘all or nothing’, meaning if the fundraising target isn’t hit the backers will get their money back, it gives businesses the chance to make the most of the wide range of skills the investor group may have, and increases word-of-mouth marketing. Good for those looking to grow their business and willing to lose a percentage of the ownership for this funding.

Some final advice...

Whatever route to finance you decide to take it is worth investing the time in researching the best deals and choosing a lender which suits your business needs. Always make sure that you are fully aware of the terms and conditions of the loan or finance agreement.

About the author

Philip Brennan is Head of – a comparison website that helps business owners search for bank accounts, commercial mortgages and business energy and insurance. Philip is passionate about helping UK businesses save money and succeed. 

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