10 alternative funding options for small businesses

Broadly speaking, ‘alternative funding’ refers to any business finance product that isn’t a traditional bank loan. 

Many of these alternatives are powered, at least in part, by fintech (short for financial technology). Fintech is revolutionising finance, opening up funding for consumers and businesses alike through niche, innovative products and category challengers. 

Last year, our CEO, Simon Cureton, spoke about how alternative finance is gaining traction and how longevity in the market doesn’t always equal quality and speed.

“Clearly, even if a lender has a century worth of experience, it means nothing if it can’t react quickly in order to support its customers,” he said. 

Let’s take a look at 10 examples of alternative funding options on the market today and how they can help businesses trade and grow with confidence.

1. Asset finance

Asset finance falls into two categories. 

The first is asset refinance. This is where a business uses its valuable balance sheet items as security for a business loan. 

The second type of asset finance includes equipment leasing and hire purchase. This type enables businesses to access the equipment they need to trade and grow – whether a van or commercial fridge – without having to buy it outright. 

2. Equity crowdfunding

Crowdfunding is a way for businesses to raise money through a ‘crowd’ — be it a group of friends/followers, private investors or financial lenders.

 Equity crowdfunding is when a business owner sells shares in the company, and investors are entitled to a share of future profits.

Peer-to-peer lending is a type of crowdfunding where the business owner effectively gets a business loan from numerous parties instead of one lender. (Skip to 7 to find out more.)

3. Invoice financing 

Invoice financing can be an effective way for businesses that regularly invoice other businesses to manage their cash flow.

Essentially, it’s a type of alternative funding that allows a business to release the capital tied up in any overdue or unpaid invoices.  

The lender effectively buys the unpaid invoice (or invoices), immediately releasing a percentage of the value. The business owner receives the remaining balance (minus a lender fee) when the client settles their account 

4. Merchant cash advances

Designed with businesses that take customer card payments in mind, merchant cash advances provide companies with a cash injection which they pay back through a percentage (usually 10%) of their customer card payments. 

5. Bridging finance 

A bridge loan is a short-term type of alternative finance that provides businesses with a quick cash injection. They can use it to fund a project while they wait for long-term funding, such as a mortgage, to come through.  

Bridging finance can facilitate the purchase of a property before the existing one is sold, but it can be used for other business purposes. 

6. Property development finance 

Various types of property development finance are available to help fund building and development costs. Businesses  considering expanding theirproperty portfolio can check out our property tips article for ideas. We’ve also created a guide for buying a property at auction. 

7. Peer-to-peer lending

Another alternative to bank loans is peer-to-peer lending. P2P platforms enable private investors to lend to businesses, with the intention of both parties getting a better rate than they would through a bank. 

P2P lending differs from standard business loans in the sense that the business is funded through a range of investors, with the P2P company as the facilitator. 

8. Term loans 

Term loans are the most common type of business finance. Despite variations, the decisive or most important elements will be that lender and borrower agree on a fixed amount, interest rate and repayment timeframe.

Some term loans require a personal guarantee. Unlike unsecured business loans, secured business loans require collateral in the form of a company asset.

9. Revolving credit facility 

Unlike a term loan, a revolving credit facility is a type of finance that enables businesses to withdraw money, pay it back, and then withdraw it again when they need to. In this sense, it’s more flexible than a traditional loan.

The business only pays interest on what it uses and doesn’t have to use the full amount. For instance, a company might have a credit facility of £4,000 and use £2,500 to purchase stock in order to meet an upcoming increase in custom. 

The company pays the money back – plus interest – over the next two months and is again able to access the full £4,000 again. 

10. Green finance

Green finance is designed to help businesses reach their net zero goals. It can be used to fund an electric vehicle, solar panels, biomass boilers and more. 

There are green lenders out there who have a commitment to reaching net zero themselves. Funding Options’ Green Finance Marketplace helps SMEs fund their journey towards reaching net zero.

Can I use Funding Options?

Funding Options specialises in connecting business owners with the funding they need to trade with confidence by comparing over 120 lenders. The application process is designed to be simple and fast, and results are tailored to the applicant.

Our customers get expert support and guidance throughout the funding process, and our technology can facilitate instant, pre-approved offers (our fastest time is 21 seconds). See what you could be eligible for today.