For many businesses needing finance, their bank is their first port of call. The British Business Bank recently reported that 51% of smaller businesses only approached their bank. If their bank declined them, only 5% would consider another lender.
However, despite banks being a clear favourite for business finance, they aren’t the only option. If you need commercial finance, here are some alternative possibilities to consider.
Invoice financing, or invoice factoring or discounting, involves selling your outstanding invoices to a lender at a discounted rate. The lender advances a percentage of the invoice amount upfront, typically around 80-90%, and collects the total amount from your customers. This option provides immediate cash flow and is a flexible funding solution that grows alongside your business’s sales.
Revolving credit allows businesses to borrow funds up to a predetermined limit. It provides flexibility, as you can withdraw funds as needed and only pay interest on the amount borrowed. A revolving line of credit is suitable for managing day-to-day expenses or handling short-term cash flow fluctuations.
Merchant cash advances are an option if your business has consistent credit or debit card sales. The lender provides an upfront lump sum in exchange for a percentage of your future card sales. You repay the debt automatically through a predetermined percentage of each future card transaction until the loan, plus fees is repaid in full.
This type of alternative funding is flexible, and your monthly repayments align with your sales.
Asset refinancing is an option for businesses with valuable assets such as buildings, warehouses, machinery, and other equipment. In this process, you sell the asset to a lender for a price based on its current value. You retain the use of the asset and pay back the loan in instalments over a set period.
The lump sum from the asset’s sale can boost your cash reserves and fulfil your funding needs.
Peer-to-peer funding is a form of financing that connects businesses needing funds with investors looking for attractive returns on their investments. This process occurs through online platforms that match lenders with borrowers. It can be a faster and more accessible way to obtain financing than traditional bank loans.
Most businesses bank with a high street bank. However, there are several specialist and challenger banks and nonbank financial institutions that provide an alternative to the high street lenders. These alternative lenders can provide business finance even if you don’t bank with them.
While traditional bank loans are a popular choice for business funding, they’re not the only option. Whether you’re a startup founder, a small business owner, or an entrepreneur with big ambitions, there are alternative funding sources that can provide the capital needed to fuel your growth. Each funding option has pros and cons, so seeking professional advice is advisable.
If you’d like help assessing your commercial finance options, get in touch.
