The past couple of years have been extremely challenging for small businesses. Entrepreneurs have been faced with a number of unprecedented obstacles, and as a result, many firms have taken a financial hit. UK companies have not only had to grapple with problems caused by the Coronavirus pandemic, but also issues created by Brexit.
Across the UK, the number of businesses requiring a boost in working capital has soared. More and more alternative financing lenders are witnessing an increase in the demand for funding, as businesses continue to grapple with challenges faced. From 2019 to 2020, the UK online alternative finance market grew from $11 billion to $12.6 billion.
Previously, businesses were only able to turn to banks when in search of funding. Now, as a result of FinTech innovations, legitimate alternative finance providers have been responsible for increasing access by providing different types of funding to businesses.
But what exactly is alternative finance, and how can your business benefit from it?
What is the alternative funding market?
Put simply, alternative finance includes any type of business funding that isn’t borrowed from mainstream providers. Alternative lenders provide financial products outside of traditional bank lending. They tend to be online-based, and are able to offer alternative solutions to businesses that can’t fulfil traditional lending requirements.
Bespoke business finance options
One of the best ways small businesses benefit from alternative funding is through the vast range of products available. These options can be tailored to suit individual
business needs. Many companies make the mistake of thinking that business funding is only available through standard business loans, but this simply isn’t the case.
Businesses can choose from different funding solutions that each have unique terms, rates and requirements. Popular products include invoice finance, which helps businesses manage lengthy payment terms and mitigate unpaid invoices, and cash advances.
A merchant cash advance can help companies that suffer low periods of cash flow, as unlike a business loan, it’s repayments are not fixed. Instead, payments are kept nicely in sync with a company’s monthly debit and credit card sales.
Greater accessibility and approval rates
When your business is in need of funding, you don’t always have the luxury of waiting around weeks on end for approval. Alternative finance providers pride themselves on fast access to funding. After making an online application, you could hear back from a lender the same or next day. Due to the efficiency of these platforms, funds are often able to be released in under a week.
As well as providing fast turnaround times, lenders also tend to boast higher approval rates. Whereas banks tend to have stringent qualifying criteria that is difficult for smaller
businesses to meet, alternative lenders understand that businesses go through financial fluctuations, and aim to provide a solution despite this.
To improve access to businesses of all credit scores, these days, even businesses with adverse credit are able to apply for funding. With that being said, it’s important for companies to ensure they have cleared any outstanding debt before considering borrowing again. These products should also be approached with caution, as they tend to have higher interest rates and penalties for non-payment.
Another reason why businesses are choosing to turn their backs to bank funding and seek alternative methods of funding, is because of the flexibility these providers offer. Bank loans tend to have regimented repayment terms and qualifying criteria, whereas alternative lenders let business choose how to get the most out of money borrowed.
Products like revolving credit facilities benefit businesses that want to access finance periodically, as and when they need it most. They help to keep the total amount paid back at a low, as interest only gets charged when funds taken from the facility are outstanding.
What’s more, depending on which product you choose, you will be able to determine how long you want to spend paying off borrowed funds. From short-term funding to long-term secured finance, there are plenty of options available.
Tap into the world of alternative business finance
If your business needs funding, it could benefit from moving away from mainstream providers and considering alternatives. With so many options available, it’s likely you’ll be able to find a product that suits your requirements. If you’re worried about trust, remember that it is in the lender’s best interest to match you with the right product that will help your business grow.
Across the UK, several providers exist. You can choose to apply through a brokerage that will be able to give you detailed comparisons of products available, or directly through a lender.
Remember, when seeking finance it’s always important to make sure you borrow responsibly from a trustworthy provider. Look out for logos like the Financial Conduct Authority (FCA) and Federation of Small Businesses (FSB) to help ensure legitimacy.