While banks remain the main source of funding for Britain’s businesses, for many this is far from the best solution as they will not be successful or because they won’t get the funding on terms which are favourable to them.Here are ten alternatives to a simple business loan which could help you grow your company.
Debt financeThe type of funding you pursue will obviously depend heavily on the the status of your business, its eligibility, how much you can afford to take on, and whether you’re willing to give away equity. If you want to retain sole ownership then debt funding is likely to make the most sense.
1. ABLAsset-based lending (ABL) allows you to borrow against the value of your assets, whether that’s your premises, stock, machinery or unpaid invoices. ABL has struggled a little due to perceptions that it is a last resort for struggling companies who need to turn assets into working capital or risk going bust. But attitudes are changing and for many businesses the opportunity to turn invoices into working capital is a useful way to boost growth. ABL is available from some banks, and other traditional providers include Close Brothers, GE Capital and Investec.
2. Invoice tradingNot entirely distinct from ABL, invoice trading is a new form of invoice finance which connects you directly with investors through an online portal. Providers say this option is more flexible and transparent than traditional invoice finance, which can often tie you into long commitments. The two leading players in the UK market are MarketInvoice and Platform Black.
3. P2P loansSometimes referred to as “debt crowdfunding”, P2P lending allows savers to lend directly to businesses in return for interest. All you have to do is create a pitch and provide some key pieces of business data and then your platform assigns you a risk band before passing the pitch on to investors. The benefits of this form of funding tend to be speed and convenience compared to applying for a bank loan, not to mention a higher likelihood of approval. Funding Circle is by far the market leader in P2P business lending in the UK, although other companies like Zopa, which has focused more on consumers up to this point, are following in its footsteps.
4. Unsecured digital lendersIn recent years a number of business-orientated unsecured lenders have popped up, which allow you to borrow flexibly at very short notice. Companies like Ezbob and Everline use complex algorithms to deliver a lending decision which is much quicker and, they say, more accurate than can be calculated by banks. Money can typically be in your account on the same day. This convenience comes at a cost though, with high interest rates compared to banks. The maximum you can borrow will typically be around £50,000 so it’s mainly useful for relatively small companies or specific short-term projects.
5. BondsBonds have been identified as a key growth area for business finance. These effectively act as an IOU offering investors, who tend to be individuals rather than institutions, a fixed return on the value of the bond, followed by repayment of the full amount some years later. They are typically used by fast-growing businesses who are confident of future performance. Retail bonds are those listed on the London Stock Exchange’s Order Book for Retail Bonds, and can be freely traded by investors. The amounts raised through this method tend to be particularly large – from £25m to £300m so they are suitable for successful, well-established businesses with a high growth trajectory. Some businesses go down the route of issuing their own mini-bonds, which are non-transferable (so investors are tied in for the whole period). Hotel Chocolat, John Lewis and King of Shaves have all raised money through this method. Crowdcube, an equity crowdfunding platform, has also launched a service allowing growing businesses to raise money through mini-bonds.
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