You may not be able to obtain a bank loan for your business or a loan at terms that are acceptable depending on the stage your business is at and the risk profile of you and the sector your business is in, so casting into fresh waters may be required.
However, other forms of business debt finance are out there, whether your need is for working capital, expansion or physical growth. Alternative funding sources may be better suited to your purpose:
Overdraft: If you have a cyclical business or a fluctuating cash flow, and your funding need is short term, a bank overdraft facility that you can pay interest on as you draw down could be a good solution.
Invoice finance: If you have invoice payments that are due to you from pretty solidly run and financially secure companies that are taking a long time to pay, you can essentially sell off your invoices for a straight advance or via an auction platform, like Market Invoice for example, and get a large percentage of the money due upfront, with the rest to follow, in exchange for admin fees and interest costs.
Merchant cash advance: If your business takes credit-card payments, then you can borrow against future revenue on a short-term basis.
Peer-to-peer loans: A bit like crowdfunding for debt, peer-to-peer lending lets people lend to businesses in return for better interest rates than they get elsewhere. Your business stands a better chance of getting some funding in quicker and maybe at a better rate than through a bank loan. You need to put some information around key business data on the site, and there is an underwriting process, but the concept is increasing in popularity, with platforms like Funding Circle leading the way.
Asset finance: Asset-based funding lets you borrow against the value of an asset you need to acquire, be it equipment, premises or stock. You can approach specialist providers such as Close Brothers, or most banks have a separate asset finance firm.
Family lending: One alternative to a traditional bank loan is a loan from the bank of mum and dad or some other family member willing and able to lend your business some money. Often you get this money at a much more favourable rate than you'd get in the open market. Just remember to get it all agreed in a legal document.
Equity: If you're happy to sell a stake in your business, then equity finance could be an answer. It comes in a variety of guises from individual or small groups of business angels to venture capital funds, crowdfunding platforms and private equity houses. Angel investors come into your business earlier than most equity investors, and for smaller amounts, making the most of the UK tax-incentive schemes for investors. Venture capitalists sometimes come in at a relatively early stage in your business but are more likely to be your second significant round of funding. Private equity firms tend to come in much later, as you prepare for a stock exchange listing or some other kind of exit, and for much larger amounts, with many of them starting to invest at the £10 million mark.
Crowdfunding: You can harness the power of the masses by offering shares or rewards in your business in exchange for funding using crowdfunding platforms such as Seedrs, Crowdbnk and Crowdcube. The bonus byproduct is widening your market exposure and gaining additional customers.
