Alternative business finance UK

Alternative finance is any business finance that doesn’t come from a mainstream provider like a high street bank. Mainstream finance is excellent for many businesses. However, banks often have strict lending criteria that smaller companies can’t fulfil. Read on for our curated list of alternative Funding Options for small and micro-businesses.

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Alternative business finance UK

What is alternative finance?

Alternative finance is any type of business finance that doesn’t come from a mainstream provider like a high street bank. Mainstream finance is excellent for many businesses, but the banks often have criteria that smaller businesses can’t fulfil and need other options.

In the past, alternative finance providers were hard to find and might have had a specific product or sector. These days, there’s a wide variety of lenders available and dozens of products, so you can find the finance that’s right for you — and it’s often much faster than through the bank.

Perhaps you need a fast business loan? Or maybe you’re looking to manage your cash flow using a new form of invoice finance? There is also a wide variety of alternative business funding that can help if your business has had difficulties in the past, such as receiving a CCJ or an accelerated payment notice from HMRC.

Alternative business finance types

Whatever you need alternative finance for, here’s your guide to some of the most common types of alternative business finance:

Term loans

The most common type of business loan, a term loan, can be known by various other names like unsecured loan, bridging loan, or cash flow loan. They all work the same way: the lender and business agree on an amount, an interest rate, and a timeframe to pay it back (the ‘term’).

There are different forms of term loans in alternative business funding; for example, some require security or personal guarantees, while others are based on credit rating or trading history.

Invoice financing

Invoice financing is a great way to unlock the cash in your invoices, especially if you have large outstanding invoices, big projects, or established clients.

The lender effectively buys your unpaid invoices, so you have most of the value straight away. Once your customer pays the invoice, you get the remaining balance minus the lender’s fee.

Invoice finance has a few subcategories, like factoring and confidential invoice discounting. Different products are suitable for different businesses, but invoice finance is a valuable way to manage cash flow if your business trades on credit and regularly invoices other companies.

Asset finance

There are two types of asset finance. One is funding secured against assets, known as asset refinance, which uses valuable items in your business as security for a loan.

The other type of asset finance includes equipment leasing and hire purchase, specifically designed to fund new and used assets like machinery and vehicles.

Equipment leasing and hire purchase can cover almost anything, whether you need plant machinery, catering equipment, telecoms systems, or a new van. Many lenders within alternative business funding specialise in a particular type of item.

Property finance

There’s also a wide range of property development finance alternatives, like commercial mortgages or auction finance. Property development is a complex field, and there are many different alternative finance products available to help build your portfolio. So we’ve got eight practical property development tips, a guide on how to buy property at auction, and much more.

Crowdfunding and peer-to-peer lending

Online platforms connect businesses seeking finance with several individuals. Generally, this involves either investors taking a small percentage of equity in the company (equity crowdfunding) or lenders loaning money and earning interest on repayments (peer-to-peer lending). The idea is to create a mutually beneficial arrangement for both sides — the business gets more straightforward access to finance. The lenders or investors can support small businesses and have a diverse portfolio without the middleman.

Crowdfunding and peer-to-peer lending aren’t suitable for every firm, but if you’ve got a good business plan that appeals to investors, they can help you get the funding you need.

Merchant cash advances

If your customers pay you via card terminals, a merchant cash advance gets you a cash sum based on future card sales, generally up to a month’s revenue. It’s quick, straightforward, and a good fit for businesses with many low-value transactions like cafés and shops — and the repayments are taken at source, making it simple and hands-off for busy company owners.

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Alternative Finance

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