Traditionally, getting a business loan required going to your bank. Accessing funding through traditional lenders, like banks, has since become much harder for small businesses.
Further, the loans available to small businesses through traditional lenders are often very slow to be approved, leaving you wondering when you’ll see the money.
If you know that finance would help you to grow your small business and you’ve not yet found the right funding source, read on. This is part of a short blog series on alternative finance options for different business needs, written with advice from Henry Audley-Charles of SMEfunding.uk.
What kind of finance do you need?
This post will cover alternative funding solutions ideal for …
- a small business that has been trading at least 2 years, looking for a quick funding decision and does not have significant assets to use as security for a loan.
- looking for a short to medium term loan (up to 5 years) to fund leasing or purchase of premises, refurbishing office space, buying equipment, hiring new staff or other one off costs.
If this isn’t you we’ll be blogging about finance options more suited to other situations in the rest of this blog series, see the end of the post for details.
Unsecured loans through an alternative finance platform
Unsecured loans are offered on the strength of a business’s credit rating and turnover, so they are ideal if you have a good credit rating and have been trading for at least 2 years. If you have a weak or impaired credit rating, or if you have been trading for less than 2 years finance is still accessible through an unsecured loan, but the cost may be higher.
Applications can be made online and decisions made rapidly, as long as you can submit all the required business records and supporting information. Funds may be received just a few days after submitting the application.
The other advantage of an unsecured loan is your business doesn’t need significant assets to secure it. We advise you check the requirements carefully however, as unsupported personal guarantees would usually be required.
Funding Circle as an example:
Funding Circle is the best known peer to peer funding platform in the UK. The platform manages money from a large number of investors, who fund the loans to borrowers.
It offers unsecured loans of £5,000 – £500,000 over up to 5 years. The costs of the loan to you will be the interest (the rate will vary depending on your specific agreement) and a one off fee for arrangement of the loan.
In terms of risk, Funding Circle requires a personal guarantee from the Directors of the business. It is important to be aware that if your business is unable to make the repayments you, as a Director of the company, will be personally liable. To mitigate this risk, you can insure yourself against the risk of a personal guarantee.
Get the right finance
There are other alternative finance platforms offering unsecured loans in the UK, for example Spotcap or Merchant Money. When you start to look at the different platforms you’ll find they all have different requirements and terms. We strongly advise you speak to an experienced and ethical broker to help you choose the right lender for the right reasons.
The optimum solution will differ from client to client, according to their specific business needs and their situation as a business owner; therefore a loan may not be the best option for your situation.
If you decide to look at funding options, an ethical broker will help you to get the right funding, on the right terms for your business. They will also ensure you fully understand the risks of any funding options you choose to pursue.
We’d like to thank both Henry Audley-Charles, Director of SMEfunding.uk and Richard Reuss, Director of Mortgage Plus who we know through our monthly ICB branch meetings, for sharing their time and knowledge for this blog post.
We’ll also be writing about other alternative funding options, suitable for different business situations, over the next couple of months or so.
Blog posts in this series:
- Alternative Finance blog #1 Secured loans: medium term finance for young small businesses or those with a poor credit rating
- Alternative Finance blog #2 Unsecured loans: fast loan decisions for established small businesses – this post
- Alternative Finance blog #3 Invoice / Supplier finance & Merchant cash advances: Short term borrowing to increase cash liquidity for a small business – coming soon.
- Alternative Finance blog #4 Funding for start up businesses – coming soon.
- Alternative Finance blog #5 Director’s pension loans: tax efficient lending option for small businesses – coming soon.