Securing finance is essential for businesses looking to take steps towards their growth. While traditional bank loans have long been the go-to option, with the loss of local bank managers and tight restrictions, they're not always easily accessible, or the best fit for every business's needs.
Fortunately, there are alternative financing options available that can provide flexibility, convenience, and tailored solutions and these are fast gaining popularity. Among these alternatives is asset financing, which allows businesses to leverage their assets to secure funding. According to the British Business bank, 53% of lending in 2022 was done by alternative and challenger lenders.
If you’re struggling to get a bank loan, there are lots of alternative business loans you could use.
Why it can be difficult to get a bank loan for small businesses
For small businesses, getting a bank loan can be challenging for a number of reasons:
What are the alternatives to bank loans?
Invoice finance
Invoice finance, also known as invoice factoring or invoice discounting, is a financing solution that enables businesses to access funds tied up in their unpaid invoices. This option is particularly suitable for businesses that have outstanding invoices with lengthy payment terms. With invoice finance, a third-party lender advances a percentage of the invoice's value (typically around 80-90%) upfront and collects the payment directly from the customers. Once the customers pay the full invoice amount, the lender releases the remaining balance, minus a small fee.
Benefits of invoice finance:
Revolving credit facility
Revolving credit facilities offer businesses a flexible line of credit that can be used as and when needed. Unlike traditional bank loans with fixed repayment terms, revolving credit facilities work similarly to a credit card, allowing businesses to borrow and repay funds repeatedly within a set credit limit. Interest is only charged on the amount borrowed, providing cost-effective financing.
Benefits of a revolving credit facility:
Merchant cash advance
Merchant cash advances are a popular type of business loan for businesses with consistent credit or debit card sales. With a merchant cash advance, a lender provides a lump sum upfront in exchange for a percentage of the business's future card sales. Repayment occurs automatically through a predetermined percentage of each future card transaction until the advance, plus fees, is repaid in full.
Benefits of a merchant cash advance:
Fintech lenders
The rise of financial technology (fintech) has brought a wave of innovative lending solutions for businesses. Fintech lenders leverage technology and data analysis to provide fast and flexible financing options. These lenders often have simplified application processes, quicker decision-making, and customised loan terms that can better suit the needs of businesses.
Benefits of using a fintech lender:
When considering a business loan, it’s important to explore alternative options beyond traditional bank loans. There are many options that could provide the necessary funding your business needs.
Calculating the potential costs and repayment terms of these alternatives can greatly impact your decision-making process. Use our business loan calculator to estimate monthly payments and assess the affordability of different financing options tailored to your business's specific needs.
You can also speak with one of our Funding Specialists when you apply for funding, to find the solution that best fits your business needs.