Alternative Funding was virtually unheard of before 2007 but then Lehman Bros fell over and the world changed. But small British businesses kept on trading, kept on cutting hair, servicing cars, selling beer and wine and doggedly kept their retail premises open. From late 2008 and well into 2010 the crowd funding & peer-to-peer lending industry started. New banks opened their doors to the SME sector. Specialist Invoice discounters appeared and cash advance was created. The alternative funders had arrived. Nowadays, traditional banks are never going to take a corner shop to a national high street chain, providing every conceivable financial service along the way but there are alternatives and here our some tips if you are considering this way forward.
- Be aware that your bank is not your only option when you need a loan and that you shouldn’t give up if they say no.
- Don’t be shy in asking for help and advice. If your bank can’t help then ask what alternatives it can recommend. Ask around, as you never know where a supplier or fellow business owner might have got their finance.
- Be brave and get educated about what is out there. The names of the new alternative sources of funding sound unfamiliar but that doesn’t mean they are not bone fide. Challenger Banks, Business or Merchant Cash Advance providers, peer-to-peer lenders, crowd funding, specialist invoice discounters and the like are keen to help well-run businesses and you should be speaking to them and learning how they work.
- Use common sense – you need to be comfortable with who you are dealing with so check that you are talking to lenders that are either regulated by the FCA or affiliated to a regulated entity. Some types of finance are not regulated but still check the company is well known and has a good reputation or that a broker is a member of a regulated body like the NACFB.
- As far as is possible try and compare at least two sources of finance, their rates, fee structures and generally try and gauge with whom you would like to work.
- If considering the cash advance option, which lets you raise finance against your future credit and debit card receipts, then it works best if you are looking to quickly secure short-term unsecured finance for something that is expected to boost the strength of your business such as refurbishment, expansion, the purchase of additional stock or advertising.
- Plan ahead and don’t leave raising finance until the very last minute. If you have a healthy history of credit and debit card transactions and there is no reason why the future shouldn’t be the same, then some cash advance providers can make a decision in as little as 5 to 10 days but many others need a lot longer.
- When approaching a new lender, make sure you are absolutely clear as to why you want the money and how you are going to pay it back.
- If worried that an option like cash advance seems expensive at first glance, remember that there are no hidden fees, legal fees or valuation costs to consider. Repayment is against a daily percentage of the businesses card takings so when takings are down you pay less and vice versa. In other words the repayment cycle follows your cash flow.
- Most importantly, don’t give up on your dream just because the bank won’t support you. There is alternative help out there.
Richard Morley, Director of European Development at Liquid Finance Partners Limited