When the bigger banks and conventional funding options don’t offer quite what your small business needs, it isn’t time to give up – instead, you can turn to one of the many alternative funding options on offer across the UK. This is what the nation’s small businesses have started doing, and today we’re going to take a look at the different kinds of alternative funding currently on offer.
Merchant cash advance
A merchant cash advance is a small business loan of between £5,000 and £200,000, which comes with a very specific repayment plan: you repay the money using a small percentage of your card sales. This is a very fast and flexible kind of unsecured loan: you can quickly borrow money without needing to provide security or submit a business plan.
You will need to meet certain qualifying criteria, including a strong history of card payments. The amount that you’re able to borrow will be determined by this card payment turnover. Then, you’ll pay the provider a percentage of your card takings each month until the payment has been made in full. This can be particularly beneficial if your takings vary a great deal from month to month, as amount that you pay is determined by how much you’ve made.
The government offer a range of different grants designed to help small businesses get off the ground or grow their operations. The amount of money available typically isn’t as much as you might get from a loan, and your business will need to fulfil certain criteria, but if there’s a grant that applies to you then it’s a way to get funding without committing to paying it back at a later date.
Do bear in mind that all grant applications are extremely competitive. You need to make it worth your time by putting the effort in and honing your business pitch.
At its simplest, crowdfunding means raising money from a group of people who all pitch in smaller sums of money, usually in exchange for either rewards or business equity.
Rewards based crowdfunding – the kind you associate with sites like Kickstarter – is particularly good for small businesses looking to get a new product off the ground. People in the community who like your idea will pledge money in return for the promise of receiving a product once it has been produced.
Equity crowdfunding is usually preferred by slightly bigger businesses looking to expand, and amounts raised typically start at around 50,000. You’ll be giving away a minority stake in your business, so it’s important to understand what that means before going ahead. However, you’ll also get a diverse and engaged investor base. Whatever kind of crowdfunding you go for, make sure you’re prepared to put time into creating a good pitch and explaining what you’ll be using the funds for – investors at all levels expect to see this information.
British Business Bank
It’s possible that you’ve never heard of the British Business Bank before. After all, it’s not like you’ll find one on every high street like the more familiar Barclays, Lloyds, or Santander. And, quite unlike bigger banks, the British Business Bank is focused on one thing: increasing the supply of credit for small and medium-sized businesses.
The British Business Bank website is positively loaded with information, making it fairly straightforward to identify which type of loan is right for your SME – although some may balk at the sheer number of different programmes available. To help narrow your search, just select whether your loan is needed to start up a business, scale up a business, or keep a successful business ahead of the competition. Bosses can then zero in the best finance options for their current situation. In a sense, it acts as a broker, connecting SMEs with investors that offer a range of funding types. It also serves up an array of advice for owners looking to grow their businesses, so you can do some research before diving into funding options. This includes handy case studies with business owners just like you.
The British Business Bank is also unique compared to others on this list: established back in 2012 by then-Business Secretary Vince Cable, it is completely owned and run by the UK government.