What options do small businesses have for getting a business loan?

Gone are the days when your bank was the only place to go to access business finance. In recent years, the number of alternative finance solutions available to businesses have soared, giving business owners more options and putting them back in control of the right solution to fit their needs.

When it comes to sourcing business finance, it very much depends on your need, but it also pays to understand your options

1. Bank Loans

Probably the most traditional form of business finance available to businesses. Banks will typically lend money based on business value, creditworthiness and a sound business plan.

Who it’s designed for: Businesses with a strong credit history who need money for investment, but if you’re time-pressured, this may not be for you.

Advantages: Reliable and trusted, banks can lend large sums of money, often over extended terms and at a reasonable rate of interest. It can be a useful option for bigger businesses who need to fund larger purchases or well-established businesses looking to expand.

Disadvantages: Whilst bank loans can be useful for large, established businesses, they haven’t necessarily been designed with small businesses in mind. Loans can be more difficult to obtain without a substantial track record or sufficient collateral, and terms are known to be quite rigid.

The application process is often complicated and time consuming, with the average time to complete around 50 days, so not ideal for businesses with an urgent need to fulfil.

Also, recent findings from the British Business Bank also indicates that 50% of first-time applications are declined.

2. Crowdfunding & P2P

Crowdfunding and P2P are relatively new solutions for business lending, that have grown in popularity over the last few years as a way for businesses to raise finance, particularly for new start ideas and projects.

You’ll need to detail your story and be specific about what you want to achieve, and set a target funding goal. From there, you’ll need to promote your campaign and encourage donations.

Who it’s designed for: Start-up businesses with big ideas or established businesses with plans to diversify or scale.

Advantages: A good alternative for businesses who would struggle to otherwise take out a loan due to credit score and a real chance for to get involved in promoting your venture from the start.

Disadvantages: As funds are contributed by several parties, there’s no guarantee that the full amount required will be raised – that’s the chance you take. There’s an onus on you to tell your story and if this doesn’t gain traction, securing the funds you need could be a slow process.

3. Alternative or Non-Bank Finance

For businesses where traditional bank funding is not accessible or appropriate, alternative finance represents another option, especially for small to medium-sized businesses who are looking to develop their businesses or support essential asset investment or expenditure.

Alternative finance can cover many requirements, predominantly through loan and lease.

Who it’s designed for: Typically, this is a good solution for established businesses who require support in scaling or diversifying their business, or equally as a means of simply spreading expenditure to boost cash flow.

In some cases, solutions are also available for new-start businesses, though this would often depend on the strength of the applicant and the availability of a detailed business plan.

Advantages: Like banks, non-bank providers can lend significant sums of money, however they are usually much quicker to arrange, with funds typically available within a couple of weeks, though in many cases – just a few days, depending on the individual requirement.

Application is straightforward, and decisions are available in a couple of days, helping businesses to have a clear idea of the funds available.

Disadvantages: Non-bank finance is a very useful tool for small to medium sized businesses, however, it may not be appropriate for larger organisations.

Find out more about our business loan options or asset finance solutions and call us today to discuss what you need on 0330 058 0836.

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