Whether you’re just starting out in business, or an established business looking to scale-up, there are plenty of reasons why you might need business funding. Perhaps you’re looking to purchase new stock? Maybe you’re planning a refurb or to move into new premises? Or, maybe you just need a cash injection to help with your cash flow?
Whatever it is, for many businesses, the first place you’ll turn to will be a high street bank. However, those businesses are missing a trick by overlooking alternative finance options – maybe because they’re simply unaware they exist.
We spoke to Tamara Ryan, Commercial Finance Consultant at Alternative Business Funding, to give us the lowdown on alternative finance solutions and why it’s a route worth exploring.
What are the advantages of alternative finance?
Alternative finance can offer a quicker and easier route to finance than your high street bank. Usually, less information is required and decisions can be made within 48 working hours – in some cases, funds can be in your bank the same day! There is also a greater range of products available, which may be more suited to a business and its needs.
Commercial property finance:
Few small to medium-sized businesses can pay cash when buying a property. They need to borrow a percentage of the cost via a commercial property mortgage.
The main difference between a commercial and residential mortgage is that a larger deposit is required. For owner-occupied commercial property, businesses can borrow 70-75 per cent of the value.
What are the most common reasons for a business to seek funding in your experience?
Businesses can seek funding for a variety of reasons. A lot of alternative funding applications are for a quick, short term injection of cash. Either a customer is late paying and this has had a knock-on effect on cash flow or they want to take advantage of supplier terms and discounts so are looking for cash quickly in order to buy stock in bulk.
Are there any misconceptions around funding?
A lot of small businesses still believe that the bank is the only place to go to look for funding. Funding through alternative sources is growing year on year and with the introduction of the Bank Referral Scheme coming into play, this is helping to spread the word. Another misconception around alternative funding is cost but there are lenders out there who can compete with the high street banks.
Asset finance allows you to borrow against the value of the equipment you need. Take, for instance, construction or company car finance, it’s basically a form of financing that allows SMEs to get their hands on an expensive asset quickly while paying back the debt in small manageable instalments plus interest.
What things does a business need to think about before applying for funding?
A business owner should consider a number of things before applying for funding. One of the main things to think about is how much they need and what this will be spent on. This will be beneficial to a lender and will help a business owner to understand their business and what impact funding will have. Other things to consider should be whether the business can afford this and what documentation may need to be produced in order for a lender to obtain a credit decision – each lender is different but there are some commonalities between lenders, usually bank statements and financial accounts are a must.
What are the top three things a business needs to do in order to secure funding?
1. Understand the business and what the money is for.
2. Prepare documents ready for a credit application.
3. Think about a business continuity plan, if something happened to the business and impacts the ability to repay back the borrowing.
A business loan is simply a form of financing intended for business purposes. In exchange for the funding you will have to pay interest on the loan. However, you retain ownership and control of your business, unlike taking on investors.
Why might a business fail to secure funding?
Reasons a business fails to obtain funding can vary lender to lender. These can be linked to sector, length of time in business and poor credit profile of the business and/or its owners.
Are there any interesting trends in the funding?
Whilst gross bank lending has remained stable, it’s interesting to note that the awareness small businesses have of alternative finance products and lenders has grown from 2017 to 2018 (Small Business Finance Markets 2018/19 report).