Bank loans aren't the only way to fund your business, and for many small businesses, they're not always the easiest option to access either. A range of alternative funding types have grown over recent years, each suited to different needs.
Here's an overview to help you understand what's out there.
Why look beyond traditional loans
Traditional bank loans can be slow to arrange and often need you to have a strong trading history or security. Alternative funding options have grown partly to fill this gap, offering faster decisions, different eligibility criteria, or funding structures better suited to specific situations, like uneven cash flow or asset-heavy businesses.
Common alternative funding types
A few of the most widely used alternatives include:
• Invoice finance, which releases cash tied up in unpaid invoices
• Asset finance, which spreads the cost of equipment or vehicles over time
• Merchant cash advances, repaid as a percentage of card sales
• Peer-to-peer lending, connecting businesses directly with individual investors
• Revenue-based financing, where repayments flex with your turnover
Matching the funding to your need
Different funding types suit different situations. If you're waiting on unpaid invoices, invoice finance can release that cash quickly. If you need equipment but want to spread the cost, asset finance is usually a better fit than a general loan. Thinking about what you actually need the money for, and how you'll realistically repay it, narrows down the options considerably.
What to check before committing
Alternative finance can come with higher costs than traditional loans, so it's worth comparing the total cost, not just the headline rate or how quickly you can access funds. Read the terms carefully around repayment flexibility, early repayment charges, and what happens if your circumstances change, since these details vary significantly between providers and product types.
Frequently asked questions
Is alternative business funding more expensive than a bank loan?
It can be, though this varies a lot by product and provider. Compare the total cost of borrowing, not just how quickly you can access the funds, before deciding.
Which alternative funding option is easiest to get approved for?
This depends on your business. Invoice finance and merchant cash advances are often more accessible for businesses without a long trading history, since they're based on your existing sales or invoices rather than credit history alone.
Can I use more than one type of alternative funding at once?
Sometimes, though it depends on the providers involved and your overall financial position. It's worth discussing with an advisor if you're considering combining different funding types.
