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Small Business Advice & Solutions

What are the Top 5 alternative funding options for your Business


Whether you’re a start-up or established small business, finding the right finance solution for your SMB isn’t always easy. Perhaps you have a short-term cash flow challenge, want to upgrade your premises or equipment, or need to invest in new products to expand your market reach.

While most major banks offer lending solutions for SMBs, many elements of these products make them less attractive to small business owners looking for a fast and simple finance solution. Banks are well known for their strict and inflexible requirements – and a lot of small businesses simply don’t meet the criteria that they require to provide a business loan.

In recent years, the SMB market has started to move away from traditional lending approaches and towards alternative sources of funding. Alternative funding is a broad term that refers to financial channels, processes and products that exist outside of the traditional finance system. Demand for new alternative finance increased 130% in the second half of 2017, according to data from Equifax, a leading data analytics provider.

If your bank can’t provide a finance solution to fit your small business, you may want to explore alternative funding. There are many different forms of alternative funding – we explore five of the most popular options below. Read on to learn more about alternative funding and discover whether it might be right for your small business.

Invoice Finance

Invoice finance (also known as debtor finance) allows you to access funding using your accounts receivable ledger as collateral. These funds can be used for any business-related expenses – from buying new equipment to paying operating costs or unexpected bills.

Advantages of invoice finance:

  • Simple application process
  • Great for smoothing cash flow, overcoming cash shortages and providing a sustainable cash flow solution longer term
  • You can access cash as soon as your client invoices are sent

Disadvantages of invoice finance:

  • May only provide you with a percentage of the total invoiced amount
  • Designed to support cash flow rather than as a loan for specific one off purchases

Unsecured Business Loan

An unsecured business loan is a short-term facility that provides funds which can be used for any business-related expenses. No collateral (security) is required which means that interest rates for this type of funding are usually quite high.

Advantages of an unsecured business loan:

  • Simple application process
  • No security required

Disadvantages of unsecured business loan:

  • Higher interest rates with relatively low amounts available
  • Usually requires repayment within 3 to 12 months
  • You may need to provide a personal guarantee

Line of Credit

A line of credit works in a similar way to a credit card – you can use it to pay for any business expenses at any time. With a line of credit, you can access funds up to a certain limit and only pay for the amount of money you use.

Advantages of a line of credit:

  • Simple application process
  • A flexible facility that allows you to access funds as you need them
  • Only pay interest on the amount of money that you use

Disadvantages of a line of credit:

  • Regular payments are required
  • Fees are usually payable regardless of whether the facility is used
  • The entire line of credit is repayable on demand

Hire Purchase

Hire purchase can be used to buy plant, machinery and equipment for your business. The asset is owned by the lender until the end of your finance term – at this stage, you can choose to keep it, sell it or replace it with a brand-new equivalent.

Advantages of hire purchase:

  • Pay for the asset over its lifetime
  • You own the asset at the end of the contract

Disadvantages of hire purchase:

  • A deposit is required
  • You don’t own the asset until the end of the contract

Personal Loan

If you own the business, you may want to consider applying for a personal loan and using these funds to finance your business purchases. A personal loan provides good flexibility but also carries personal risk.

Advantages of a personal loan:

  • Make payments in instalments over the loan term
  • Can usually be repaid early

Disadvantages of a personal loan:

  • Eligibility will depend on your personal credit rating
  • You are personally responsible for the repayments
  • Higher interest rates

While small business is embracing alternative funding, a recent survey by cloud accounting provider Reckon found that more than half of SMB owners have used their personal credit cards to pay for work-related expenses. This suggests that while there’s a growing awareness of non-bank lending options, many business owners don’t have the time to search for an alternative funding option and opt to use their personal credit card as a ‘quick fix’.

If you’d like to explore a more strategic approach to accessing finance for your small business, Cashflow Finance offers a free 30-minute consultation to understand your needs and identify the best funding options for you. Contact us today for more information or to book a call.