Require Immediate Support? Helpline 0800 056 0410

What are the alternatives to a bank loan for businesses looking for finance?

PUBLISHED ON: 29/10/2023

Which forms of alternative funding are available when looking for business finance?

Bank loans are the traditional method of funding a business, but given the banks’ strict lending criteria, and with so many alternatives now available, there may be better options for businesses looking for finance.

Alternative funding is typically quicker to access than a bank loan, offers greater flexibility, and doesn’t always require a business to have a good credit rating. So what are your potential options if your business is looking for funding?

Invoice financing

Invoice finance incorporates factoring and invoice discounting and the funding available is based on your sales ledger. If your business operates a strong sales ledger and you have low levels of bad and doubtful debts, you may be able to considerably boost your cash flow.

The lender releases around 90 per cent of each invoice, usually in 24-48 hours, and then pays the remainder when your customer pays in full. This ensures that your business has regular inputs of working capital and can function with stability.

Merchant cash advances

Merchant cash advances could benefit your business if you conduct high levels of debit and credit card transactions. The lender advances cash to you based on a proportion of your predicted card transactions and you repay from the card sale amounts.

This type of alternative funding is flexible and you’re only tied to making repayment amounts that align with your sales rather than the fixed monthly payments demanded by a bank loan.

Hire purchase

Hire purchase is a form of asset finance that allows you to purchase an asset without using up business capital. A hire purchase agreement typically includes a completion payment at the end of the contract, which transfers ownership to your company.

Prior to this, you follow a fixed repayment schedule, which allows you to use the asset with no restrictions. The fixed interest rate applied, and the pre-set term, also makes budgeting easier.

Asset refinance

Asset refinancing can be a good option for businesses with valuable assets. You can sell the asset to a financier, and then rent it back from them with no interruption in your rights to use it. You also take back ownership at the end of the contract.

Sometimes called a sale and leaseback arrangement, the rental payments are fixed so you know exactly how much you’re paying over the full term. The lump sum from the sale of the asset can considerably boost your cash reserves and fulfil your funding needs.

Working capital finance

Working capital finance is a form of funding that’s typically used to meet additional demands on cash flow during short-term projects. It might cover additional labour costs, for example, or inventory purchases.

Revolving credit is a type of working capital finance that’s similar to a bank overdraft. You can use the facility, pay the money back, and use it again as many times as necessary during the term, up to the credit limit set by the financier.

For more information on bank loan alternatives, please get in touch with UK Business Finance - we work from offices around the country.

Contact us for more information

  • Fully Independent
  • Whole Market Access
  • Matchmaking Process