Banks remain the UK’s number one source of SME finance , but alternative finance for businesses is plugging the gaps where bank loan requests are rejected. £1.75 billion in loans to businesses in 2014 came from the alternative finance sector.
But the problem is that the majority of SMEs simply don’t have a full understanding of how alternative finance works and how it can benefit them. Do you fall into this category? If so, by the end of this article you should be well on your way to understanding it much better.
If your company has been turned down for credit by your bank, or even if it hasn’t, you can certainly benefit from alternative finance options.
Why Financing Options Are Essential To Your Business
Has your business experienced unexpected problems with cash flow in the past? It happens to all businesses at one time or another, where late client payments, foreign exchange volatility, low sales volumes or any of a number of other issues causes problems with the financing of operations.
This is why having access to credit is so important, but what can you do if your company is turned down by your bank for a credit line or a loan?
This is where alternative finance for businesses comes in, and where it has come to the aid of increasing numbers of companies in recent years.
Additional Benefits Of Alternative Finance For Businesses
Much of bank credit to SMEs comes in the form of what are essentially short-term loans, whether it is a credit card overdraft or a credit line.
Added to this the monopoly that banks enjoy regarding SME finance, they typically offer you credit on the conditions of high interest rates and short-term agreements, with little flexibility. Alternative sources of finance create more competition and so the banks are no longer the only means to access credit.
What this means for you is the opportunity to shop around, to locate the type of financing and accompanying conditions that are best for your business.
Types of Alternative Finance & How To Choose
The alternative finance sector is growing all the time, roughly doubling in size year on year since 2012.
Let’s take a look at the type of alternative finance that your company can make use of:
A sum of money made up of smaller sums from multiple investors.
- Equity finance
Raising capital in return for a slice of your company – rather than the traditional angel or venture capital options, there are now platforms offering crowd equity funding.
- Invoice financing
Selling an invoice in exchange for cash.
- Revenue-based loans
Loans with repayment proportionally linked to your future revenue stream.
Potential Problems With Alternative SME Finance & How To Remedy Them
While it is fantastic that you aren’t wholly reliant on your bank anymore, the problem of too much choice has actually come to the fore of late.
The number of alternative lenders ballooned in 2015, so how do you know who to go with and how to decide which is best?
As alternative finance is relatively young, it is inevitable that such information suppliers will sprout up. AltFi Funding is one such platform that aims to help companies looking for alternative credit by offering an aggregate platform of lenders.
The Final Word
Gone are the days where your company had no choice for finance apart from your bank. Your company now has a wealth of options, with the possibility of longer payment terms and lower interest rates than the norm with banks.
And if nothing else, simply knowing that there are alternative credit sources out there – lenders who really want to cough up the cash to help your company – eases the headache of potential cash flow problems down the line.