You might think that the only option for small business funding is through the traditional bank or grant route. But times are changing, and there’s been a recent explosion of new ways to access finance. Read on to find out how to get your next business loan without going to the bank.
Small Business Funding with Traditional Finance
Up until about 10 years ago, if you wanted to borrow cash for your business, you probably went straight to a bank. And you would more than likely secure a loan if you had a sound business plan backed up with collateral.
That all changed when the financial crisis hit in 2008. Since then, banks have cut back on small business loans, forcing small business owners to look elsewhere for capital.
According to a report by the Cleveland Fed, in 2015, loans to small businesses were 17% below the peak reached prior to the recession.
Small Business Funding with Alternative Finance
If all this sounds bitterly familiar, fear not! There are other ways to get your hands on capital. Enter alternative finance.
What is it? Alternative finance refers to the financial channels that have sprung up outside of the traditional lending system (consisting mostly of High Street banks).
Examples of these channels include:
- Peer to peer lending
- Invoice factoring
- Invoice discounting
Alternative finance is growing rapidly. According to a study by the Cambridge Centre for Alternative Finance and Nesta, in 2015:
The combined market activity of the UK online alternative finance industry grew to £3.2 billion; an 84% increase in growth compared to the £1.74 billion of 2014.
So next time you need to borrow cash…
We’ll go into a bit more detail about how and why the lending landscape is changing in a separate post. But for now it is well worth noting that if you need a business loan, you might want to investigate some of these alternative routes before you turn to your bank.
All our conversations with alternative lenders suggest you will be pleasantly surprised at how painless it is to apply and how quickly you can get an answer.
Next time you need cash for your business, think about different routes. These alternative financial channels have a much higher tolerance for risk because lenders stand to be rewarded with a higher return. This is because the new platforms take out the middle man, allowing businesses to connect directly with willing lenders, reducing transactional costs and improving efficiency.
How to know if you will have a cash gap?
Are you looking to forecast when you might need a cash injection? Check out Float Cash Flow Forecasting!
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