Raising Finance

Bank borrowing alternatives: What is best for you?

5 min read

16 October 2015

If a bank loan is not an option for you, what are the best alternatives?

Do you want to start up a business, expand your existing one with new assets, or need a trade cash boost? Anyone in control of their own business, or in the initiatory phases of development, will naturally consider taking to their bank to request a loan. 

Despite conventional bank loans carrying low interest rates, it is often difficult to get approved with ‘big banks’ only accepting 20 per cent loan requests received. 

However, bank borrowing is by no means the only source from which you can fund your business. Dependent on what you wish to spend the money on, the amount you need, and the degree of flexibility you require there are plenty of alternatives to look into.

Need new equipment, software, or hardware but can’t afford the full payment? Choose asset finance

Asset finance is ideal for any business owners who are looking to update, maintain, or replace their assets. 

Usually involving regular charging over a set period of time, it allows businesses who otherwise would struggle to make use of expensive equipment technology and materials which they would not be able to buy outright. 

The two main types of Asset finance consist of: leasing and hire purchase. Each involve breaking regular payment down over a set course of months.

The difference in the two lies in the ownership and structured deposit scheme:

Leasing:

  • A monthly fee in return for the use of the goods. 
  • At the end of the lease, the assets are returned to the loaning company — completing the contract when handing back to the company

Hire purchase:

  • On completion of hire purchase agreements, the payee becomes the full owner of the asset; allowing full ownership without a significant upfront cost
  • Generally Hire Purchases additionally require a 10-20 per cent value deposit, however, compared to the full expense, this is significantly less of a blow to your company cash flow

Taking to trading but need to fund the transaction? Choose trade finance

Whether it’s UK or international trade you are planning to embark upon, trade finance can fill the funding gap between paying a supplier and payment from customers. 

There are now many reputable and reliable independent trade financiers, who formed in response to 2009’s bank crisis. 

Services include import finance, purchase finance, and letters which all accelerate receivables and payment as well as removing payment and supply risk. Additionally, most trade finance suppliers work on a flexible basis — only requiring payment at peak times of trade when your business has the capacity to do so. 

Such independent sources of finance can allow business owners to retain control of their business, and avoid any unnecessary third party contribution, such as venture capitalists.

Making the leap to mid-sized? Choose a syndicate loan

Previously known as the primary source of corporate funding, syndicate loans were the exclusive preserve of big business. 

They work on the basis of several sources feeding into one loan in a structured arrangement. In terms of corporations the sources are usually big banks: helping to bankroll take overs, acquisitions, or expansion projects. 

However, institutions such as mutual funds and insurance companies are also increasingly participating in such ventures. Each syndicate has one lead lender who funds a substantial portion of the loan and allocates the cash flows of the other members. 

As no two syndicates are identical, they offer a flexible funding source for current mid-sized companies or those on the cusp of moving up to this larger company status.

So, whatever your need for a money boost there is plenty of options for your business which avoid bank borrowing. 

Despite banks seeming like the safest way to borrow money, there are now new services which not only offer the same sort of security but are actually tailored to your businesses’ needs. A simple consideration of what you will be using the money for is all it takes to find the perfect solution for you.

Jade Attwood is the content editor for The Formations Company.