Comparing alternative finance options for your business

It is often difficult for start-ups and small businesses to acquire the funding they need to grow from mainstream sources such as banks. However, the growth of the alternative finance market now offers a range of options that are much more readily available to help with cashflow or the purchase of expensive assets. According to finance specialists Solution Loans, options such as crowd-funding, invoice finance, guarantor loans or bad credit loans are all available to small businesses.

For most start-ups and small business owners, acquiring funding to get started and then to grow the business is one of the most difficult challenges they face according to recent studies. Often new businesses do not have the credit history that traditional lenders, such as banks, require before offering any type of loan. This puts these new businesses in a Catch-22, they cannot grow because of lack of funds but they cannot increase profits without growing.

Few start-ups are in the fortunate position of being able to privately fund their new business so if you cannot access funding through more traditional means what are the alternatives available?

Alternative Finance Market

There are various different ways you can get your hands on the money you require because there is now an alternative finance market that is growing at a rapid pace, which means that businesses are no longer dependent on big-name banks for their business finance and can often obtain the funds they need much more quickly than going through traditional bank loan applications.

The alternative finance market provides many different types of loans, some of which are:

• Guarantor Loans where another individual with a good credit history guarantees to make the loan repayments if you cannot. The guarantor could be a family member or even an angel investor.
• Cashflow Loans (also known as Bridging Loans or Term Loans), which provide funds to help a business during short-term lulls (especially if the business is seasonal) or for short-term growth plans.
• Crowd Funding where individual investors may receive equity in the company or earn interest in return for funds. This is attractive to investors because they can have a range of small investments, thus spreading their risk and, of course, attractive to small businesses because they get relatively easy access to funds.
• Asset Finance is particularly suitable for those businesses that need to purchase expensive equipment, vehicles or premises in order to start their business or grow an existing one. This type of loan allows the purchase of the business asset upfront with repayments made in regular installments in much the same way as you might purchase a personal asset such as a house or car.
• Invoice Finance is ideal for those businesses involved in major projects that tend to invoice clients for very large amounts which are not usually paid for several months after the invoice date. The lender typically lends you the amount of any unpaid invoices so the business benefits from the work they have done much more quickly than they otherwise would. Of course, this comes at a cost on terms of the lenders percentage, but for very large invoices this can be a cost-effective way of managing cashflow.

These new finance options have significantly increased funding choices accessible to businesses, particularly start-ups with little or no credit history. What this means for company owners is that they now have reliable and reputable alternatives beyond mainstream financial service providers and traditional lenders. If you are looking for a loan but have failed with mainstream lenders then alternative finance may be the best solution for you and your business.

The author has written and published articles on a wide range of topics including Small Business Advice, Tax and Accounting, Interior Design, House Renovation and Project Management.