What is alternative finance?
Alternative finance refers to any type of business finance which isn’t provided via a traditional bank. The types of loans available through alternative finance are varied, including business finance in the form of cash flow loans and invoice financing.
This type of lending has grown rapidly in the past few years, with a wide range of alternative finance providers and products currently available to businesses.
How does alternative lending work?
Most of the money supplied to businesses from alternative finance companies is generated through loans and investors. Due to the rise in fintech, alternative finance providers use detailed algorithms, risk assessment models and relevant data to aid and speed up their approval process. This means they may be able to approve applications traditional banks would reject.
In addition, most alternative finance lenders allow you to apply over the telephone or through a simple form on their website as opposed to setting up a physical face-to-face meeting. If you’re able to provide all the information needed quickly, and your business is approved, many alternative lenders will be able to provide funds within days or even hours.
Alternative finance vs traditional bank loans
There are several reasons why businesses are turning to alternative finance providers in place of traditional banks. These include:
The average bank loan takes weeks to complete, with the decision taking up to seven days. This can be even longer if your assets need to be valued against a secured loan. In comparison, through alternative lending, you can receive the funds in as little as 24 hours.
From application through to receiving the funds, the entire process of applying for alternative finance is considered much quicker than conventional bank lending. This allows businesses the flexibility and freedom to capitalize on opportunities such as buying exclusive stock or covering the cost of a time-sensitive marketing campaign.
2. Different criteria
Many businesses who are turned down for a typical bank loan find that they are in fact eligible for an alternative business loan. This is down to the fact that alternative lenders value slightly different criteria compared to banks when underwriting a loan.
For example, while a bank may have strict rejection policies based on an applicant’s credit history, an alternative lender may consider trading history, cash flow and even online reviews instead.
3. Less paperwork
Most alternative finance providers are based online and encourage companies to apply for finance through their website or over the phone. This sidesteps the frustrating back-and-forth of paperwork which is common with traditional bank loans.
Any documents which are required are usually sent securely through an online portal, removing the need to lug paperwork down to the bank and fill in forms left, right and centre. In fact, many applications can be completed without leaving the comfort of your office.
4. More choice and flexibility
There are plenty of alternative lenders for your small business, with even more emerging as the industry continues to gain momentum.
Alternative lenders tend to specialize in one form of finance, such as unsecured loans, invoice financing or merchant cash advances. This means their products are tailored to customer needs, varying in repayment terms, interest rates and loan size, so you can choose the type of finance that works for your business and its needs. Consequently, alternative lenders have a reputation of being more flexible than the average bank. For example, many alternative finance products won’t have the costly fees and early repayment penalties associated with bank loans.
What can alternative business funding be used for?
While some alternative finance products and lenders might have stricter rules than others, most funding options can be used in any way that benefits your business. That might include:
- Boosting your cash flow or working capital during a quiet period.
- Taking advantage of time-sensitive opportunities, like buying discounted stock.
- Funding larger growth projects, such as upgrading equipment or expanding premises.
- Launching a new product line or investing in sustainability.
- Paying unexpected bills, like VAT or corporation tax.
So why do businesses still go to the banks?
Ultimately, it comes down to three aspects: a lack of awareness, interest rates and an old-fashioned sense of security.
According to a recent survey by the British Business Bank, while awareness is improving, there is still a lack of information available to small businesses around alternative business finance in the UK. The report also revealed SMEs lack confidence when approaching lenders, as up to 73% of SMEs are willing to forgo growth rather than take out a business loan.
This general lack of understanding around how alternative lenders can offer tailored finance, coupled with the reticence to even approach lenders, means that businesses often have a blind spot when it comes to noticing the wealth of funding options available to them.
Additionally, because banks have access to a larger pot of capital, they are usually able to offer slightly lower interest rates than alternative finance companies. If you’re leaning towards a traditional loan for this reason, bear in mind that banks typically have higher upfront fees and harsher repayment penalties than alternative lenders, so be sure to explore all your options thoroughly.
Despite offering less flexibility, many business owners still opt for the time-held bank loan with what they consider to be a household name. This is also often accompanied by a sense of security in going for a traditional option which has been around for longer. This leads on to the next point of…
Some wrongly assume that ‘alternative’ and ‘unsecured’ are allusions for ‘unregulated’ and ‘unsafe’. On the contrary, alternative business funding is completely safe so long as you ensure you’ve chosen a reputable and reliable company.
Always complete your due diligence by browsing the lender’s online reviews and customer case studies along with carefully checking their reputation and payment terms. It’s also a good idea to ensure the company has a viable physical address. If you’re ever uncertain, consult the Association of Alternative Business Finance, who set the standards of best practice in financial services.
Another misconception is that alternative finance is only an option if you’ve been rejected for a bank loan. Although banks are legally obliged to direct you to government-designated alternative lenders if they reject you for finance, an increasing number of SMEs are choosing to sidestep banks altogether for a more straightforward funding solution.
Types of alternative finance
There are a wealth of products available to those looking for alternative business finance in the UK, including business loans, asset finance and invoice finance. These are facilitated through peer-to-peer lending or from a lender’s own balance sheet.
Unsecured and secured business loans
Alternative small business loans are normally defined as either unsecured or secured, just like traditional loans. Unsecured business loans are generally more popular. They usually come with slightly higher interest rates, and while you may still need a personal guarantee, they don’t require any assets as security. This also means they are quicker to be approved, as your assets don’t need to be valued.
Secured loans are usually higher-value and require you to offer something, such as a property, as collateral in case you're unable to repay. They may have lower interest rates as a result and can also be a good option for companies with an inconsistent credit history, as valuable assets will be able to offset this.
Crowdfunding is mainly used for funding start-ups or business launches. Essentially, it refers to the method of raising a large sum of money through many individuals investing a small part each, as opposed to one lender providing the whole sum.
There are a couple of types of crowdfunding such as rewards-based, which involves contributors exchanging investment for a service or product. Equity-based crowdfunding, on the other hand, involves contributors becoming part-owners by trading capital for equity shares.
Peer-to-peer lending is loosely based on the concept of crowdfunding, with small businesses seeking funding from multiple investors. It’s considered to be a straightforward and low-risk form of debt funding and has experienced a surge in popularity over recent years.
This type of alternative financing for small businesses involves putting your company before a panel of investors via a digital platform. Investors can choose which companies they’d like to invest in along with the amount they want to put forward. Once the business reaches its target of funds, they receive the money and begin to repay interest at an agreed rate.
Revenue-based financing involves providing finance to a business in exchange for a share of its future revenue. This is an ideal alternative lending solution for companies who are looking for partnership or limited company loans.
The most common form of this is a merchant cash advance. However, this can be quite an expensive solution as it involves offering a lump sum in exchange for a percentage of credit and debit card sales.
Invoice financing allows small businesses to borrow money against outstanding invoices before they’ve been fulfilled by customers. This involves a third-party lending money against the invoice for a fee. Invoice financing is a common and effective way to free up cash flow when the restraints of late payment by customers are inhibiting growth.
The concept has been around for a number of years so there are a couple of modern upgrades to the traditional invoice financing model which are quicker and more flexible. Peer-to-peer lending is one such example that may allow lenders to fund a higher percentage of the invoice compared to traditional invoice finance models.
How does Fleximize's alternative finance work?
We’re experts in providing tailored finance solutions to businesses looking for an alternative to the big banks. We can lend up to a maximum of two times your monthly turnover, including unsecured loans of up to £250,000 and secured loans of up to £500,000. Here’s a quick summary of how our flexible finance works:
- Alternative business loans of £5,000 – £500,000 repaid over 3 – 48 months.
- Quick online application with approval and funding in as little as 24 hours.
- Competitive interest rates starting from 0.9% per month.
- Industry-leading flexibility, with top-ups and repayment holidays as standard.
- No hidden fees or early repayment penalties.
- Pay interest on a reducing balance, not the total loan amount.
Do I qualify for Fleximize's alternative small business loans?
If you’ve been rejected by a bank or are reluctant to apply for traditional finance in the first place, we can help. You can apply for alternative finance with Fleximize if:
- You’re a limited company or LLP.
- Your business is based in England or Wales. We can offer an unsecured loan of up to £250,000 if you’re based in Northern Ireland or Scotland.
- You’ve been trading for at least six months.
- You have a minimum monthly turnover of £5,000.
If you’re a sole trader or a non-limited partnership with less than four partners, you can apply to borrow a minimum of £25,000.
Our alternative lending criteria means we won’t automatically turn you down because of an inconsistent credit history. We’ll take other factors into account and look at your situation as a whole.
If you meet our criteria detailed above and need alternative business funding, click the button below to apply now.
Why choose Fleximize?
We’ve become one of the UK’s leading alternative finance providers since launching in 2014, having lent over £150 million to UK SMEs in need of better funding options. Here are a few reasons why you should get in touch.
- We’re fuss-free: You can apply online in minutes without the hassle of setting up appointments. There's minimal paperwork and we’ll look at more than just your credit history.
- We’re flexible: We don’t charge hidden fees and you can repay early at no extra cost. Our alternative small business loans come with top-ups and repayment holidays too.
- We’re personal: Your dedicated relationship manager will get to know your business and match it with the ideal product, rates and loan terms. They’ll be there to greet you if you return for extra funding later down the line, as most of our customers do.
Our customers have named us Best Business Finance Provider at the British Bank Awards twice in recent years. For more information on how we’ve been able to help thousands of businesses with alternative finance, take a look at our customer case studies and Trustpilot reviews.
How to apply for alternative finance with Fleximize
It’s quick and easy to apply for our alternative small business loans. There’s no need to wait for an appointment or fill out reams of paperwork, as you might with a bank. Simply complete our short online application form with a few basic details.
If you pass our initial checks, someone from our team will be in touch to explain the final steps. You could get approved and receive your loan on the same day once we have everything we need.