Don’t bank on it: alternative ways to fund your business

Research last year showed that more than half of small businesses have growth plans but traditional finance options aren’t helping. Two thirds of business owners didn’t expect to get the funding they needed from their bank and 53% of small businesses who applied for a loan were declined. Perhaps that’s why in 2014 only 13% used their bank to finance their business.

But there are other options. Lending by alternative finance providers almost doubled in the last year and the UK is the leading market in Europe for this type of funding. In 2014, over £1 billion was borrowed and that’s likely to rise further as the government introduces rules to ensure banks pass on information about alternative finance to customers whose funding applications have been rejected.

So what types of alternative finance are available?

Asset finance

This allows you to secure finance against existing assets. The most common types are factoring or invoice discounting, where you get an advance against your outstanding invoices in return for a small fee.

If you’re struggling with late payments or have a lot of cash tied up in your invoices, it’s a great way to release it. Many businesses are using it – the market has grown by 4% in the last year and £444 million was advanced.

Marketplace lending

Businesses can access loans through online marketplaces which connect them to individuals and corporate funders with money to lend. Your business benefits from a fast approval process and the loans are typically unsecured. In 2014, £1.2 billion was funded via online marketplaces.

Crowdfunding

Another growing market which had funded £50.7 million by Q3 2014, crowdfunding allows individuals or businesses to invest in return for rewards. There are three types of crowdfunding options:

  • Equity based, where investors receive shares in the business
  • Rewards based, where businesses offer a product or non-financial reward
  • Donation based, where the donor doesn’t expect a return

How to get started

With a range of options available, it can be hard to know where to start. That’s why we’ve done the hard work for you by building relationships with two of the market leaders: Funding Circle and MarketInvoice.

MarketInvoice funds growing businesses with revenues of over £100,000 by releasing cash tied up in their unpaid invoices. You can access the funds on the same day you sign up. And if you’re a Sage 50 Accounts customer, it’s even easier to use, as you can connect your software with MarketInvoice.
Sage 50 Accounts customer Ales by Mail use the service to access funds. “MarketInvoice was very, very quick and very efficient,” says owner Paul Kruzycki. “It’s certainly a benefit to us that the process of getting invoices into the MarketInvoice system can be simplified and straightforward thanks to the Sage software we use.”

Find out more about accessing finance with MarketInvoice

Funding Circle is the world’s leading online marketplace for business loans. Funding Circle can give your business access to growth capital between £5,000 and £1 million, payable over terms of up to five years. It can take as little as one week for funds to reach your business bank account. The Funding Circle marketplace has already connected more than 8,000 small businesses with investors, facilitating £700 million in loans to British businesses since 2010.

Find out more about accessing finance with Funding Circle

For more information on alternative funding, download our free guide to alternative finance or keep up to date on the latest financial tips, tricks and advice with our practical guides on healthy cash flow management.