Alternative small company financing sources

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