
According to the latest statistics, the industry is set to be worth £20bn by 2020, but with more and more business owners turning to alternative lenders, what are the most suitable options for your business and how can you improve your chances of securing finance in 2016?
Before kick-starting any application for funding, it’s important to get your house in order. Although lenders in the alternative finance market aren’t subject to the same legislative restrictions as the banks, this doesn’t mean they are willing to lend to every applicant.Visionary
Finance providers will first and foremost assess whether the owner has a vision for the company. Although small and growing businesses may not have formalised this as part of any written document, company owners need to show they have a clear business plan in place. It may seem obvious but presenting a clear case for why funding is required, shouldn’t be overlooked. Whether that’s just to fund working capital and cover company overheads or keep up with PAYE and VAT payments to HMRC or a much larger project, this is crucial.Use company assets
A general rule applies here – the greater the amount the company is looking to borrow, the higher the level of scrutiny applied by a lender. Business owners need to be prepared to show accurate future financial forecasts. For a small startup this may be overwhelming, however, most independent financiers will be appreciative that the company is still in its infancy.Create an attractive proposition
A good auditable paper trail is a superb way for businesses to show they are “finance ready”. Again, although this isn’t mandatory, finance providers will be more inclined to lend to those companies with sufficient ISO (International Organisation for Standardisation) accreditations – these are set of standards that businesses can seek for their paperwork. Such accreditations are used as a kite mark to show that business management and financial information is at a certain level and provides further peace of mind for finance providers. The majority of alternative lenders will do homework and carry out credit ratings, so any businesses that may have fallen into arrears with overdrafts or credit cards may find it difficult to secure finance.Read more on alternative finance:
- P2P finance exploded in 2015 as loans from Lending Works grew fourfold
- Challenger banks are best placed to meet the bespoke needs of UK mid-market firms
- Alternative finance is great to increase entrepreneurship
What are the options?
There are a number of alternative finance routes companies may choose but it can be difficult to know where to start. It’s vital therefore that business owners do their homework – for example, by speaking to other companies or contacts in the industry, doing background reading as well as seeking the view of finance and accounting professionals. Here are some of the options explained: Peer–to-peer lending – P2P lending has grown in popularity as a form of lending for budding entrepreneurs and provides access to unsecured loans. Many of these lenders compete in an online space and are much more open to offering a loan to small start-ups based on a short-term risk assessment.Share this story