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A look at Alternative Finance

If you need a business loan and have been turned down by traditional lenders and mainstream financial services providers you may feel despondent, but it is important to remember there are other options to explore, should you find yourself in this position.

The alternative finance market is diverse and growing and has an important role to play in funding small businesses. Research from the Cambridge Centre for Alternative Finance and Nesta shows that in 2015 the market grew by 84% and facilitated £3.2bn in investments, loans and donations. The sector is more flexible and can often offer better terms for your business.


Some of the options available include:

Peer-to-Peer Lending

These online services match individual lenders or groups of lenders directly with borrowers. The main advantage of this approach is that they can offer lower interest rates than a high street bank or other financial institution due to the low operating costs that result from being internet-based. There is also often more flexibility on repayment terms. However, it is important to note that any issues such as defaulting on payment will incur charges and will be noted on your credit file, potentially making it harder to secure credit in the future.

Invoice trading

If you are an SME with a cashflow issue, invoice trading can be a way of resolving the problem. You ‘auction’ your outstanding invoices online and sell them individually or in bundles to the bidders who offer the most competitive price to advance you the money.  When your customer then pays the invoice you have to refund the investor with the advance, plus fees.

Equity crowd funding

This form of finance is similar to peer-to-peer lending in that you advertise your business via an online platform to potential investors. Interested individuals then pool funds to become equity stakeholders, often in early stage companies where the opportunities, and risks, are the greatest. There are a number of well-established platforms including Kickstarter, Seedrs and Crowdcube.

Business Angels

Business Angels are most commonly high net-worth individuals who invest in early-stage or high growth businesses. They will usually have extensive knowledge of growing a business and, as well as investing their own money in return for shares, will as a mentor and advisor.

Whether you need to fund growth, invest in new products or take on a new opportunity alternative finance may help you stay in business and grow. There are people out there who want to lend to SMEs. You need to identify the most appropriate route for you and then work hard to secure their support.