Banks refused to lend to one-third of British small businesses who applied for a loan last year.
That means nearly one million businesses faced pushback from banks, according to research by open banking provider Yolt, with the main sticking points being timing, too much debt, and insufficient collateral.
Collectively, UK businesses missed out on £3.6bn worth of much-needed finance and of those businesses which did secure funding, only 20 percent said the process was easy.
According to research, the typical SME requested a £331,275 loan to assist their firm to expand, mostly for equipment, technology, and business growth. On average, small enterprises could borrow around £50,000 less than this.
According to the FSB, lending to small companies reached an all-time low in May, and fewer small businesses currently seek financing. The lowest application rate recorded was only 9% in the first quarter of 2022.
What are the alternative company finance choices for your small business to consider, given that receiving a beneficial boost from your bank is by no means a guarantee? Where can you go if you need an alternative for company funding?
Alternatives for financing businesses
Finance for invoices
Invoice finance may be useful to aid firms that often sell to other businesses on credit terms with their cash flow. With this alternative financing strategy, a lender pays you promptly for your outstanding invoices—typically within 24 hours—and gets a percentage when the cash eventually arrives.
This may hasten the expansion of your firm. However, you’re betting (figuratively) that those customers will ultimately pay up.
It’s important to note that this option is only accessible for B2B services, which means that your clients must be other companies and not the general public.
Finance for invoices comes in two flavors. Invoice discounting, where the provider still gives a portion of the invoice but the client continues to pay the company as usual, and invoice factoring, when the financing provider provides up to 90% of the remaining invoice and directly pursues payment from your customers.
Invoice finance providers
| Provider | Advance rate | Requirements | Offerings | Service fee |
|---|---|---|---|---|
| Lloyds | Up to 90 per cent, typically within 24 hours | Must have a projected annual turnover of £50,000 and over and sell to other businesses on credit terms | UK-based invoice finance team who can tailor a solution to match your trading patterns and business goals. Access to an intuitive online system, so you can easily manage your invoice finance facility | Request quote |
| Novuna | Up to 90 per cent within 24 hours | Available to SMEs with a turnover of £500,000 and above | No hidden fees | Request quote |
| Market Finance | Up to 90 per cent within 24 hours | Minimum annual turnover of £100,000 or annualised income from current year’s trading. Limited companies and LLPs only. | Easy to use digital interface and real-time customer support. No hidden fees | 0.2 – 3.5 per cent |
| Aldermore | Typically up to 90 per cent within 24 hours | Annual turnover typically above £250,000 | N/A | Request quote |
| Close Brothers | Up to 90 per cent | Minimum annual turnover of £500,000 | N/A | Request quote (charged as a percentage of gross turnover) |
| HSBC | Up to 90 per cent the next working day | A projected business turnover over £500,000 (including start-ups) | Ability to add credit protection to guard against late payment or bad debts | Request quote |
| Metro Bank | Up to 90 per cent within 24 hours | Ability to end your contract with no penalty fee with just 28 days’ notice | Request quote | |
| Skipton | Up to 90 per cent within 24 hours | Invoice discounting deals for SMEs with turnovers as small as £100,000 | Free credit reports on your clients | Request quote |
Source SmallBusiness.co.uk
Alternative loan and debt providers
For small businesses, business loans can be a useful boost to buy stock, equipment, or assets. The monthly repayment period can span from one to 10 years and a fixed rate can be rubber-stamped before the loan is taken out.
There are two types of business loans.
Secured business loans require you to put up collateral as security, meaning the lender will take over the assets if you’re unable to repay. That could mean your house or your car. The advantage of this route is interest rates are low.
Unsecured loans are easier to obtain, and don’t require the risk of losing any assets but you can expect to pay more in interest.
With banks being increasingly cautious with their loans, alternative loan providers have seen a surge in popularity, with most giving approval within 24 hours.
Loan and debt providers
| Provider | Funding | Approval turnaround | Rates | Repayment period | Requirements |
|---|---|---|---|---|---|
| Funding Circle | £10,000 to £500,000 | As little as five hours | From 3.9 per cent per year | 2 to 6 years | Must have been trading for at least two years. £16,700 minimum turnover per year |
| Capify | £5,000 to £500,000 | Approval in under 60 seconds | Flexible – request quote | 3 to 18 months | Monthly turnover of £10,000 and over and must be a limited company trading for at least 12 months |
| Iwoca | £1,000 to £500,000 | 24 hours | Flexible | 0 to 6 months | N/A |
| Fleximize | £5,000 to £500,000 | 24 hours | Rates of 0.9 per cent to 2.9 per cent (from 10.8 per cent per annum) | 12 to 48 months | Must have been trading for at least 12 months |
| Cubefunder | £5,000 to £100,000 | Within 48 hours | Flexible | 3 to 12 months | Minimum turnover of £50,000 per year. Must be a limited company in England and Wales that has been trading for at least three months |
Source: SmallBusiness.co.uk
Advance on merchant credit
Using a merchant cash advance, you may be able to get your money more quickly if your company accepts credit card payments via a card terminal.
Unlike a conventional bank loan, there are no interest rates or regular monthly payments. Instead, you give the supplier a cut of any further card sales. If your company generates less revenue in one month, the payback will be reduced, and you will pay less. Be prepared to pay a little extra if the company has a month above typical.
This choice offers a quick route to finance. In the UK, it typically takes three business days for a payment processor to transfer money from a consumer who purchases a product to your bank. That money can be accessible in less than 24 hours using a merchant cash advance.
Merchant cash advance providers
| Provider | Funding | Requirements | Repayment period | Approval turnaround |
|---|---|---|---|---|
| 365 Business Finance | £10,000 to £300,000 | Monthly card sales of £10,000 and over | Typically six to 10 months | Within 24 hours |
| Newable Finance | £10,000 to £1m | Must have been trading for six months or more and receive a monthly card sales of £5,000 | Flexible | Within 48 hours |
| Capify | £5,000 to £500,000 and over | Card sales of £5,000 per month. Majority of payments must be through a card terminal | Flexible | N/A |
| Merchant Loan Advance | £3,000 to £300,000 | Must be trading for approximately three months and turning over more than £2,500 in card sales a month | Flexible | Within 24 hours |
| SME Loans | £5,000 to £500,000 | The business must have been trading for at least six months. | Flexible | Within 24 hours |
| Monthly average card sales must total a minimum of £5,000 | ||||
| Nucleus | From £3,000 up to £2m | Must have been trading for a minimum of four months | Flexible | Typically within 24 hours |
Peer-to-peer lending
Peer-to-peer lending, often known as P2P lending, enables borrowers to be matched with specific lenders through a P2P platform for rapid and flexible loans at cheap rates.
Before connecting a borrower with a lender, the platform will conduct background checks, such as verifying credit scores, after the applicant has disclosed the amount they’re trying to borrow and desired payback time.
Going the P2P method has the benefit that a financing decision may be made virtually immediately, and the loan is then made accessible in a couple of days.
Peer to peer lending providers
| Provider | Loan range | Interest rate | Approval turnaround | Commitment term |
|---|---|---|---|---|
| Funding Circle | £10,000 to £500,000 | From 3.9 per cent | As little as five hours. Funds within 24 hours | From 2 to 6 years |
| Assetz Capital | Up to £2.5m (SME secured loan) | 5.75 per cent | Within 24 hours | Up to five years |
| Crowd2Fund | £25,000 to £1m | 6 to 15 per cent | N/A | From 1 to 5 years |
| Funding Knight | £250,000 to £1m | Typically between 8.75 per cent and 12 per cent | Within 24 hours | From 6 months to 5 years |
