What alternative finance options are available to traditional bank loans?

Julie Palmer

Regional Managing Partner

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What alternative finance options are available to traditional bank loans?

Updated: 17th January 2020

Understanding Alternative Commercial Finance

Traditional bank loans have become difficult to secure since changes were made to the industry following the global economic recession, but it’s paved the way for alternative methods of funding that may be better suited to the type of agile business world we now work in.

Online lending has certainly increased the speed with which funding can be applied for and sanctioned, but it’s the sheer number of options that makes alternative lending so accessible for all types and sizes of business.

New banking landscape

Although the mainstream banks retain an important position on the high street, new banking models have emerged in recent years. So-called challenger banks have disrupted a once steadfast industry, and revolutionised the way we interact with them.

They’re synonymous with flexibility and streamlined processes that allow applications to be dealt with quickly, using minimal paperwork. Approaching a challenger bank for funding could be a good option if you need finance fast, and your business has a relatively good credit rating.

Business loans for bad credit or no credit history

If you’re a young business with no credit history, or have a poor credit rating, there are specialist lenders that may still be able to offer funding. You’ll pay higher interest rates than standard loans and won’t enjoy a wide product choice, but the funding could be vital for your business to survive and grow.

Lenders base their decisions on their risk of default so businesses with no credit record are viewed as risky in the same way as those with a poor credit history, as there’s no previous record of repayment on which to inform their decision.

"Online lending has certainly increased the speed with which funding can be applied for and sanctioned"

Peer-to-peer lending (P2P)

Peer-to-peer lending platforms enable groups of individual lenders to fund businesses, largely via unsecured loans. Interest rates may be a little higher than with some other forms of alternative finance, but access to funding is relatively straightforward once the initial application to seek borrowing on the platform has been agreed.

Invoice finance

Invoice finance is a fairly broad term that covers factoring, invoice discounting, and several variations of these methods. In essence, a business’ sales ledger is used to generate finance on a monthly basis - each time a sales invoice is issued the financier advances around 90% of its value to the business. The remainder is paid when the customer pays in full, and the lender deducts their charges from this amount.

Merchant cash advances

Merchant cash advances use the value of future card sales to provide funding. They’re a flexible way to obtain regular injections of working capital and are ideal for businesses in retail and hospitality, but any organisation that generates high volumes of card transactions may benefit. There’s no fixed repayment schedule, and again, no need for a perfect credit record.

Inventory finance

Inventory finance releases the value in your stock, and can be a good option for retailers, wholesalers, and manufacturing businesses. The lender provides funding using stock as security, and the borrower repays the loan as the stock is purchased by their customers. It relieves the pressure on cash flow by providing a rolling finance facility, so as new stock is purchased, the funding cycle repeats.

Given the extensive choice of alternative financing methods, it can be difficult to know which type of funding is best for a business. RBR Advisory has contacts with over 50 alternative lenders around the UK, and will provide the guidance and support you need when seeking this type of finance. Please call one of our partner-led team to arrange a same-day consultation – we work from a large network of offices nationwide.