The value of the alternative finance market in the UK is expected to double by the end of 2015 as more and more businesses shy away from high street banks and begin to look into alternative finance products as a more efficient and effective way of growing and developing their emerging brand. However, ‘alternative finance’ is an umbrella term, covering many different types of alternative finance options – so which is the right choice for your business, and how can you get the best deal?
If you’re interested in increasing your growth capital to purchase new premises, buy equipment, or expand your workforce through alternative finance products, here are some questions to be asking:
If a business has security in the way of assets, it makes sense to offer this security as collateral against a business loan. ‘Security’, in this sense, is a lax term, and can be used to describe accounts receivable, inventory, or property – anything that can help reduce the risk for lenders. Because of this, this type of alternative finance is usually best suited to manufacturing companies, or those with warehouses, storage facilities, or high end equipment – the value of the loan is only as good as your assets. For some businesses, ABF can be a cost effective way to free up cash flow capital quickly.
Not all businesses are prepared to go down the equity route, rather than the debt route, but it can work out well for some companies – particularly start ups and other young businesses. While P2P can sometimes be debt-based, many lenders prefer to invest. This can be good news – investors are usually aware of the risks involved, and in many cases a company will not be expected to repay an investor should the business fail. Investors can also bring sound knowledge and experience to the table which can guide new businesses and help them develop along the most effective pathways.
While you may have good net profits, you may not have a particularly good cash flow status. However, this can be used to a business’ advantage. How? Through invoice trading – a very popular alternative finance product. The arrangement is simple – unpaid invoices for goods or services are sold to lenders, who pay a percentage of the amount owed. Clients, in turn, repay the lender. For businesses making good sales month on month, the amount of cash available can be significant. It’s believed that the value of the UK’s invoice trading market is greater than the US and Germany’s combined!
With so many alternative finance lenders offering business loans today, the market is fast becoming highly competitive. This is great news for small businesses, as it means interest rates are typically dropping as more and more lenders strive to become the most attractive option. Businesses can compare alternative finance options online at comapreyourbusinesscosts.com to identify the right providers and the right deals for their company.