So you’re there full of wonderful business ideas dying to show the rest of the world what you can offer, but then you check the bank account and it seems that these ideas will only happen in your dreams…
Well, we disagree! Looking at global entrepreneurs such as Richard Branson and Lord Alan Sugar who started their businesses on less than a grand, shows how a business can go far with little money – how? By simply looking at your alternative options, banks may help but more than often there is just too much risk when lending to start-up businesses because of their non-existent credit history, trading periods and lack of accounts. You may think a business plan is enough to fulfil criteria but unfortunately the picture is much bigger that just that.
So what are your alternative options to bank finance?
Merchant Cash Advance
What is Merchant Cash Advance?
Merchant Cash Advance is a straightforward type of unsecured funding, it is paid back via debit and credit card sales made, which allows repayments to be much more affordable and manageable meaning the new business will not struggle to keep up with payments. With Merchant Cash Advance the chances of approval are a lot higher compared to other forms of financing. However, although it is accessible it can be a lot more expensive than a bank loan.
What is Invoice Finance?
Invoice Finance is a fast and flexible way to secure loans based on the value of a business’ outstanding invoices to other companies. For a small fee, a network of investors will provide an advance of up to 90 per cent of the invoice value, enabling businesses to have access to funds that may not of otherwise, for up to 120 days. Most banks offer this solution however, there are some challenger brands who are very competitive such as; Bibby, Aldermore and Shawbrook who offer competitive rates and slick application processes. This can be much more expensive than a bank loan but can plug short term gaps in cash flow and offer admin support to collect your outstanding invoices.
What is peer-to-peer lending?
This online process pairs businesses looking for loans with investors who have available savings or capital. These loans can be unsecured or secured and would have fixed payments like a standard loan. While full financial records will have to be submitted, it offers the option to access finance within a matter of days or weeks, rather than months. Rates tend to be competitive if a little more expensive than banks. However, the process of accessing your finance can be a lot easier.
What is Equity Crowdfunding?
Equity crowdfunding, an increasingly popular way of securing finance. It allows both experienced investors and your ‘regular Joe’ to provide funding for a business in return for shares. While most platforms are ‘all or nothing,’ meaning if the fundraising target isn’t hit the backers will get their money back, it gives businesses the chance to make the most of the wide range of skills the investor group may have, and increases word-of-mouth marketing. Equity Crowdfunding is good for those looking to grow their business and willing to lose a percentage of the ownership for the funding.
What is Asset Finance?
Asset finance allows a business to spread the cost of investing in equipment to run their business efficiently. This could range from computer systems, software, new machinery and commercial vehicles breaking down the payments into more manageable instalments. This method has less of an impact on business cash flow and can yield tax benefits, in some cases. Asset finance can be done in several ways, through leasing, hire purchase and contact hire.
The market has seen great strides in terms of alternative finance options over the past few years and we at Businesscomparison.com make it our business to keep on top of the latest new options out there available to SMEs and other businesses get access to the funding they need to run their businesses efficiently.