Business Finance: Your Options if the Banks Say ‘No’
Are you having trouble keeping up with what’s happening in terms of small business lending? So are we! And we can hardly be blamed for feeling a little confused at times. On the whole, things are looking good for the economy, and the banks that were heavily criticised for refusing lending to small businesses throughout the recession are slowly beginning to take measures to redeem themselves.
A great example of this is the Funding for Lending scheme that was introduced by the Bank and HM Treasury in2012. In theory, the scheme should have seen more small businesses being approved for funding. Did this happen? No. In fact, in figures released just last year by the Bank of England, we can see that in a period of just 3 months, £4.3 billion more was repaid by businesses than was borrowed.
It appears that, despite outward appearances, small businesses are still needing to jump through hoops just to even be considered for a bank loan. The lucky ones may come out the other side with a high interest loan, but what about the others? What about the ones that are refused? If you’ve been refused business financing, don’t panic! It may even turn out to be a blessing in disguise!
Your Alternative Financing Options
Although ‘alternative financing’ has become the approved term, ‘alternative’ maybe isn’t the best word. In a report by Cambridge University, this type of informal business lending was described as ‘moving mainstream’, which is pretty accurate. What started out as something quite unconventional and a bit peculiar is fast becoming the norm for British businesses who want to bypass the banks.
Option 1: Peer-to-Peer Lending
If you’ve been refused a loan by a high street bank, your most obvious solution is to look into peer-to-peer lending for businesses, or ‘P2P’. Why is it the most obvious? Because P2P is leading the way all across Europe in terms of alternative business financing – the market was worth a whopping €274.62m in 2014. £73,000 is the average borrowed in P2P transactions.
Option 2: Equity Crowdfunding
In exchange for equity, businesses can receive substantial funding from one or multiple interested parties who are keen to invest in new businesses. Often ‘silent’, business owners still get to operate and manage their company in their own way, but are supported financially which enables them to grow and develop at more accelerated rates to stay ahead.
Option 3: Invoice Financing
Invoice financing is becoming popular, but it’s not for everyone. That’s why some businesses may want to consider other options before committing. The market is worth £6.63 million in Europe, and was actually the fastest growing form of alternative finance last year. It’s a relatively new concept which doesn’t quite have the same level of backing as other forms.
Of course there are further options available – reducing your workforce, moving premises, and so on – but these options hinder your business in exchange for cash. Company owners should be looking to move forwards, not backwards, which is why it makes sense to source business financing from alternative sources should a traditional high street bank refuse an application. The alternative financing market is set to double this year, which means that it’s essentially a lender’s market. So take a look at what’s available for you and your business at compareyourbusinesscosts.com