Running a business out of pocket using only the company’s revenue and your personal savings can work, but it will never allow for optimal growth.
To speed things up and remain competitive, most businesses eventually realise that they’ll need to obtain finance. Unfortunately, British Business Bank speculates that every year about 100,000 small businesses are turned down by banks in the UK.
Are all of those companies supposed to just give up on having access to much-needed capital while some of their competition has the advantage of having the banks on their side?
Luckily, quitting altogether isn’t the only option as there are some alternative financing options worth considering, primarily including the following:
Small Business and Limited Company Loans
Banks aren’t the only finance providers that are capable of providing small loans to limited companies. There are plenty of private lenders and smaller lending institutions that offer loans to businesses that can’t get approved by the banks.
Of course, the approval will come with a trade-off as you’ll usually be paying higher interest, but it’s certainly worth having slightly higher repayments when you consider you could be loaned up to £150,000 for your business to use for whatever it needs – find out more about limited company loans here.
Merchant Cash Advances
The merchant cash advance is a relatively new method of financing that has become popular with businesses due to its convenience and ease of repayment.
Primarily, if your company can prove that it has been generating at least £5,000 in revenue, you may be able to have up to 150% of your monthly income advanced in exchange for paying it back via a small percentage of each payment during the current month.
For example, if you’re generating £5,000 in sales then you could be loaned £7,500, which you could then pay back during the following month via small incremental payments off of each transaction.
Some companies prefer this approach over being stuck with more substantial monthly repayments.
Peer to Peer Lending
Peer to peer (P2P) lending has become highly popular in recent years as private investors are making it easier for businesses to obtain loans of up to £50,000.
Although a business credit score isn’t as crucial with P2P loan approval, it is surely still a factor, and you’ll need to prove that your business is profitable enough to justify the requested loan amount.
Each P2P lending network has thousands of individual lenders that could finance your company if your loan proposal is convincing enough.
If your business gets paid by some of its clients or customers on a net 30 or net 60 basis, one way you could access your invoice payments faster is to sell your open invoices to an invoice financing company.
For example, if your company can show that it is owed £5,000 in payments but won’t be paid until next month, that amount could be accessed the same business day via invoice financing.
Banks Legally Required to Refer Rejected Businesses to Alternative Finance Providers
As of 2016, banks in the UK are now legally required to direct applicants to alternative finance providers if they’re unable to approve a request for a business loan.
The new laws were introduced as part of the Small Business Enterprise and Employment Act 2015, and the provision that mandates a referral is known as the “bank referral scheme.”
Fortunately, this requirement will probably make small business owners more aware of the alternative financing options mentioned above, thereby boosting the UK’s economy by equipping more British companies with funding.