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Monday, December 05, 2022

Alternative funding options for small businesses

Whether you’re trying to survive or thrive, finance can provide the boost your business needs. You might want to boost cash flow in a quiet period or invest in new premises or equipment. Whatever your goals, there are several ways to achieve them beyond applying for regular business loans with high-street banks.

You’re not alone either. The British Business Bank’s most recent Small Business Finance Markets report shows that 37% of business owners would use external finance to grow. UK finance meanwhile reports that gross lending to SMEs totaled £22.6 billion in 2021.

Having a working knowledge of the different finance products available gives you an advantage, in that it will help you find a method of borrowing that suits your business. Read up on three of the main alternative options on the market below. 

Cash flow finance

Cash flow finance is effectively a loan that’s secured by your predicted future revenues. It’s generally designed to provide a financial boost in the short term, and not be – as the name might suggest – a long-term means of managing your cash flow.

Alternative business finance providers need to see solid cash flow forecasts to gain confidence in lending to you. If you can provide that, it’s a relatively quick option that’s similar to a standard business loan in terms of repayment.

You’ll repay what you borrow, plus interest, in monthly installments over a short period, usually of up to around six months.  

Business cash advance

A business cash advance works a little differently from a loan. You’ll still receive the money you need upfront, or in ‘advance’, but will repay it as an agreed percentage of your future card takings.

You can use a cash advance for many of the same reasons you might use other finance products. But by tying repayments to card sales, you can repay in a way that suits how your business is performing at the time.

It’s a handy solution for businesses such as restaurants, bars and hotels, for whom card payments are their primary source of income, and business can be seasonal.   

Asset-based lending

Asset-based lending involves taking on a loan that’s secured by one or several assets such as property, stock, accounts receivable, and equipment. It’s a good option if you have valuable assets and need to raise a large portion of the money or have unpredictable cash flow. More liquid collateral – i.e. assets that can be quickly converted to cash – is preferable.

An example of a suitable business is a construction firm that owns valuable equipment but needs to balance cash flow in the face of long payment terms.

Could any of these financial products suit your business and objectives?

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