SMEs Gain Financing Options Going into 2017on 26 December 2016
It will come as no shock to SMEs that data continue show a consistent pattern of neglect, if not outright hostility, by High Street banks toward small businesses. Figures from sources as varied as the British Bankers Association, alternative lenders, and the government show that the trend has only been downward. For instance, lending platform FundingOptions report an overall 37% decline in SME overdraft financing from 2011 to end of September 2016.
In a spot of bright news, as of 1 November 2016 Britain’s nine largest banks are now required to help businesses find alternatives. The Small Business and Employment Act 2015 mandates that banks refer on any businesses they decline to fund to one of three lenders, including FundingOptions. The other two platforms are Business Finance Compared and Funding Xchange. The latter was founded by a small business owner, Katrin Herrling, who herself was denied lending needed for cash-flow purposes during slow months in her dairy business.
That type of lending, though, is often exactly what’s needed: seasonal businesses need to cover revenue gaps during slow periods, and late payments – a real scourge – can mean SMEs struggle just to make payroll. Loans, on the other hand, can mean the difference between whether a business is able to grow or not, invest in infrastructure or not. Fortunately, small businesses in 2016 started to educate themselves about alternative finance, and the word is spreading. Here are some practical tips for looking outside of traditional lenders.
Alternative finance options
Business Finance Compared and Funding Options take information you provide about your business to direct you to a variety of alternatives appropriate for your needs and sector. Both will also help you select from among the results of their findings.
FundingXchange provides a competitive ‘forum’ for its approved partners to compete to fund your business based on the financials you provide. You can apply for invoice financing, short-term loans, secured business loans, and more.
Funding Circle is a peer-to-peer lending platform that bundles funds from many sources. You might have hundreds of backers at once. Funding Circle’s model has been incredibly successful and beneficial for both investors and SMEs. In addition, the British Business Bank lends through this platform.
ArchOver is also a peer-to-peer lending platform, backed by financial services company Hampden Group, but its focus is loans between £100,000 and £3 million. If your business is stable but looking to grow or acquire property, for example, this is worth a look.
What to know before you apply
The companies listed above are by no means the only players in this market, as the growth in alternative finance has been big in the past two years – for instance, in your search you’ll also come across companies specialising in invoice financing and debt factoring. That said, the big names are the best places to start: as we might have expected, unethical lenders have entered the game masquerading as alternative finance for SMEs. The better-known companies provide clarity and transparency, including what you need to provide, funding sources, and terms and conditions.
Ensure that your financials are in order. It’s tough for small and microbusinesses to stay fully on top of things, but if you can, have your books looked over by a chartered accountant so that you can be sure you’re being transparent with potential funders.
Be able to articulate your story, your marketing plan, and any other information you think would be of interest to lenders.
Depending on the platform, you as a company director may be asked to sign a personal guarantee in order to secure funds. Lenders in this market are more likely to be educated about the sectors that SMEs operate in and about the risks associated with this type of lending, but they’ll still want to see signs of your investment in your company.
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