Why alternative finance would benefit a small business

When you need working capital for your business, the search for a provider can be both stressful and time consuming.

A few years ago, visiting your local bank to ask for a business loan or overdraft was the only option, but since 2008, small businesses have struggled with this traditional source of finance.

According to the Bank of England, bank lending to small businesses via overdrafts has shrunk by over £5 billion since 2011. Many businesses now find it nearly impossible to get approved for a new overdraft with their bank, which has led to an influx of alternative providers.

Banks typically rely on a ‘one size fits all’ model which does not suit many modern businesses, but today there is a new option: alternative lenders are becoming the go to choice for small businesses. These new providers are able to supply better terms, a simpler application process and quick decisions, creating an entirely new borrowing experience. The best providers are using their increased efficiency to offer their clients better rates and new products, exhibit greater flexibility when it comes to security and provide more transparent terms.

Alternative providers can offer working capital in a matter of days, which is great news for small businesses. In the past traditional providers could take up to a few weeks to send out an indicative offer. With dedicated risk teams, alternative providers can establish the worthiness of a small business based on a number of factors, not just their profits and losses’ statements. The extensive documentation businesses are required to give can become troublesome for early businesses.

Alternative providers have begun offering curated insights to better equip small businesses to grow. This personal touch is hard to find anywhere else when it comes to small business finance. Furthermore, alternative providers are known for their brilliant customer service and trusting approach, giving borrowers full control on how they spend their money.

A recent report by the Cambridge Centre for Alternative Finance, and UK innovation foundation Nesta, showed that alternative finance platforms made up 12 per cent of the UK market for small business lending. The Global Retail Banking report found customers had an overall positive experience with alternative lenders, significantly better than the experience they had with traditional banks.

Alternative finance has many forms: overdraft facilities, loans and invoice financing. Today, your business has many choices for finance, whether you need help maintaining cash flow throughout slower months in the year, or because you are planning on investing in growth, alternative finance is the best option for growing businesses. 

This also featured on Fresh Business Thinking. You can find it here. 

Written on in Borrowing