Funding your ambition in 2017: the benefits of alternative finance
The alternative finance market is growing spectacularly in the UK. It reached over €4.4 billion (£3.7bn) in 2015, accounting for more than 80% of the European market1. But many small business owners are still not clued up about the range of alternative options available to them. As 2017 begins in earnest the time is ripe to look at smarter ways to grow your business.
Investment can take plenty of planning so it is never too early to start. But with traditional banks hesitant to lend in the current economic climate, securing funding is often a challenge for SMEs.
Traditional loans can mean putting up the things you hold dearest as collateral, or sticking to a rigid monthly payment plan even during unpredictable trading periods. That all-important APR can come back to haunt you if you haven’t taken full account of potential fluctuations over the repayment period. Late and early repayment fees only add to the pain. Before too long that short-term loan intended to grow your business might actually be undermining your financial security and future prospects.
Research shows that half of loan applications from first time SME borrowers are rejected, limiting ambitions to invest and grow the business2. The system clearly doesn’t work for everyone. And that’s where alternative financing comes in.
An alternative way
Alternative financing is a new, technology-led approach to funding. It can provide a level of choice and flexibility that many small businesses find is better suited to their business needs than traditional lending.
One model proving popular offers businesses an unsecured “cash advance” based on their future credit and debit card sales. One such example is Worldpay Business Finance, created in partnership with Liberis. Backed by the UK government owned British Business Bank, Liberis have helped thousands of small businesses nationwide with their innovative approach to finance.
With a Business Cash Advance, payments are made on the basis of a pre-agreed percentage of the business’ card takings. So business owners only pay when they are earning and don’t face the stress of having to meet a regular monthly payment if business is quiet. There’s no fixed term and unlike traditional ‘loans’, SMEs will not face penalties for failing to make a payment. If the advance takes longer to pay off, the originally agreed payment costs remain the same.
You can use the money for whatever you want, from investing in extra staff, to renovations or stock purchases. An extra cash injection can be the difference between success and failure.
Having pushed the boundaries of the funding landscape, alternative finance is set to join the ranks of the mainstream in 2017. So if you haven’t already starting thinking about new ways to invest in your business, the time to do so is now.
1Cambridge Centre for Alternative Finance: The 2nd European Alternative Finance Industry Report
2BIS Consultation on SME Finance