Alternatives to bank loans: which is right for your business?

For business owners looking for a way to finance their business that does not require a traditional bank loan, there are numerous options to consider. One of the most popular alternatives is debt financing through venture capital firms and business angels, which can provide capital without requiring business owners to take on debt.

Another option is crowdfunding, where business owners raise money by appealing directly to customers and other potential backers via social media and websites. Lastly, business owners can also pursue grants and loans from local or federal government programs designed to support new business endeavors. All of these avenues allow businesses to access funding while avoiding costly fees and long loan processing times associated with traditional bank loans.

What are the alternatives to bank loans?

When you receive a rejection letter from your local High Street bank, it can be natural to feel disheartened and demoralised by what feels like a failed attempt at securing SME funding. However, don’t let these feelings paralyse you. There are alternatives to bank loans which can provide strong alternatives for business owners in need of short-term finance.

From venture capital funding to invoice financing, there is a range of financing routes available for small businesses looking for that much needed cash injection. Make sure to investigate all alternatives thoroughly before committing as each will have their individual requirements, advantages and drawbacks.

Here are a few alternatives to a bank loan:

Invoice Finance

Another alternative is Invoice finance has become an increasingly popular option for businesses looking to fund their growth. This type of financing provides businesses with access to cash generated from unpaid invoices and can dramatically improve the speed at which a company can scale up and realise its ambitions. Invoice finance is also an attractive option due to its flexible terms, with repayments tied to customer payments, making it a more manageable form of debt than traditional loans and overdrafts.

Moreover, this financing choice allows companies of all sizes with varying credit histories to gain access to the funds they need quickly and securely. Given these advantages, invoice finance is fast becoming a smart move for any business looking to position itself for success in today’s competitive markets.

Trade Finance

Trade finance is an important element of the global economy, as it serves to facilitate the flow of goods in markets across the world. It helps businesses engage in international trade by providing access to funds needed for purchasing operations, transport and insurance services. By giving companies the ability to manage their finances during the trading process, trade finance ensures that products are delivered efficiently and securely.

It can also be used to mitigate risks associated with foreign exchange fluctuations and changes in interest rates, allowing organisations greater confidence in the trading environment. As a result, trade finance has become increasingly popular for all types of businesses looking to increase cost-effectiveness and optimise their market position.

Business Credit Card

A business credit card can be an invaluable tool for entrepreneurs and small business owners. It allows them the flexibility to make purchases that can help manage short-term cash flow problems and gives them the ability to track their spending with ease. The rewards received from most business credit cards are tailored specifically for businesses, such as enhanced cashback offers or access to discounted prices on certain products or services.

Additionally, they come with higher credit limits than traditional personal cards, allowing greater freedom of access to capital. All these features make it an ideal way of managing expenses while maintaining financial control through detailed tracking and cost savings opportunities.

Merchant Cash Advance

A merchant cash advance is an alternative financing solution that provides quick working capital to small businesses. Banks and traditional lenders can be inflexible with their loan terms, so a merchant cash advance makes it easier for entrepreneurs to get the funds they need when they need them.

With a merchant cash advance, entrepreneurs are able to access short-term capital by selling a portion of their future credit card sales in exchange for an immediate lump sum payment. This financing option provides businesses with fast access to funds while avoiding expensive interest rates associated with more traditional borrowing structures.

Unsecured Business Loan

An unsecured business loan provides assistance to companies that cannot or don’t want to use collateral for financing their operations. It offers entrepreneurs with access to upfront capital, regardless of the type of business they’re in or the size of their organization. This type of loan works well for businesses that have shaky credit ratings, since approval is based mainly on revenue potential and current market conditions rather than solely on credit-worthiness.

Unsecured business loans guarantee faster approval and disbursal time compared to bad-credit secured loans. These features make them attractive for emergency situations or businesses that need money as soon as possible.

Asset Finance

Asset finance is a smart choice for established businesses facing growth that require the equipment they need to drive success. Through asset finance, it is possible to buy large items like vehicles and machinery without making a huge up-front payment or tying up capital in the purchase. Asset finance allows businesses to access higher value assets, boosting their productivity and development rate, as well as enjoying peace of mind as future servicing and maintenance costs can also be covered.

This method of funding opens up a range of commercial possibilities for businesses across multiple sectors and with its flexible nature, suits many companies needs and financial situations.

Why it’s difficult to get a bank loan as an SME

Small and medium enterprises (SMEs) often encounter difficulty when applying for loan services from banks. The application process is an arduous one and can be especially daunting for those who aren’t highly experienced in the financial industry. Banks typically require a long list of documentation such as business income statements, tax returns and financial projections to assess how reliable the borrower may be in paying back the loan.

Additionally, getting a bank loan is often contingent on having strong personal credit scores or other types of collateral — something most SMEs don’t have. Until regulations change, SMEs must go through complex applications and prepare intense amounts of paperwork if they want to get access to capital via loans.

Read more: Alternative financing for startups

Who Can Apply for Alternatives to Bank Loans?

Any business registered in the UK and trading for more than six months with an average monthly turnover of around £5000, are eligible to apply for alternatives to a bank loan. To optimise your chances when applying for alternative financing, review our guide on managing cash flow.

How to apply for a bank loan alternative

To apply for alternative bank loan funding is so easy to get started, just follow these simple steps and you’ll be on your way to getting the cash boost you need:

Step 1:

Applications can be processed online by clicking on “Get funds”. The following information will be required:

• The registered name of your business venture
• Registered office address
• Your businesses monthly turnover
• Loan amount, how much is required

Step 2:

The next step will be a request for some personal details, including:

• Full name
• Your contact number
• Email address so we can send you out terms and conditions

Step 3:

You will need to agree to the terms and conditions.

Step 4:

We will review the application and assign an account manager to your application. If it is approved, we will let you know within 24 hours.

Step 5:

Both parties need to sign the agreement before the loan can be paid out. Our turnaround of completion usually takes between 2–5 days from recipe of application form.

Conclusion

Alternatives to Bank Loans in the UK are beginning to emerge due to rising demand for more accessible financing options. From peer-to-peer (P2P) lending, invoice financing, and crowdfunding, to merchant cash advances, asset financing and pooled funds, there are now a growing number of ways for businesses to gain access to capital without having to take out a loan from a bank.

While some of these alternative sources come with higher interest rates than traditional loans from banks, they often provide flexible repayment terms and quick turnaround times that cannot be matched by bank lenders. As such, businesses of all sizes in the UK can benefit from exploring the various financing options now on offer.

Read more: Alternative Business Funding