Whether you’re focused on growth or operation resilience in the face of an uncertain economic outlook, your business must have a solid funding base from which to build out and execute its commercial strategies. And these days that means more than just increasing your overdraft.
UK businesses are now embracing alternative finance for many positive reasons rather than turning to it as a last resort when the banks won’t lend. Some of the compelling reasons to do so include:
With options ranging from peer-to-peer lending to invoice finance, there is an alternative solution for every business. So while traditional bank loans and overdrafts are being withdrawn – often with little notice – UK firms are looking to alternative finance methods to help fund their business objectives.
Traditional bank finance could be described as inflexible: if you’ve maxed out your overdraft but have a big order coming in, where do you turn? By contrast, businesses using invoice finance, for example, have the flexibility of using as much or as little of the facility as required, depending on monthly activity. And if you don’t want to increase your funding, some financiers will offer a short-term solution for when that big order presents itself out of the blue. Further flexibility comes from the broad menu of options to choose from – both when deciding what type of finance is needed and how to repay the money raised.
Most traditional financiers lend on a one-size-fits-all model that doesn’t work for many businesses. By contrast, alternative finance solutions are typically entirely bespoke and the facility reflects exactly what the business needs. The funds available through invoice finance, for example, rise and fall alongside turnover, so you always have access to exactly what your business needs, whatever the season.
Alternative finance lenders tend to be much closer to the marketplace than the banks, many of which have pulled back from the traditional model of employing managers with close links to their local business communities in favour of greater automation. The advisers employed by many alternative lenders are industry specialists, while in the case of crowdfunding, businesses have a direct connection with each individual lender.
Alternative finance offers a much more bespoke borrowing option than some more traditional types of business finance. Funding is arranged according to the unique profile of your business – including the industry you work in, the company’s turnover and, most importantly, your business objectives.
Alternative finance unlocks value tied up in your business in innovative ways that traditional funding methods can’t. You can secure funds against the value of your plant and machinery, for example, or even release capital from invoices that have yet to be settled by your customers.
Alternative finance often provides added value – using your unpaid invoices to obtain finance can enable you to negotiate better rates with your suppliers for early payment, for example. Crowdfunding platforms, meanwhile, may also produce cost benefits by cutting out financial intermediaries. If you only use your business overdraft every now and then, you may not see the benefit of using alternative finance. However, if you experience regular cash flow issues or feel that you could gain from a bespoke facility with a lender that can offer regular business support, then this additional value is likely to far outweigh the costs.
- Though all aforementioned options fall under the umbrella term “alternative finance”, some solutions, including invoice, asset finance and asset based lending (ABL) are now far more mainstream and, in a bid to remain competitive, are even starting to be offered by the high street banks.
- Funding through alternative solutions is typically entirely bespoke – two facilities will rarely look the same because no two companies are identical. This means your funding should fit perfectly around the day-to-day running of your business while traditional solutions may fall short.
- When looking into alternative solutions, it is important to consider what added value you will receive, such as expert business advice, debtor insight or credit control support. You can read more on this here.