Exploring Optimal Financial Alternatives for Your Business

Posted on 13th September 2023

Scaling and growth are important for any business that wants to survive. But finding secure funding methods to do just that is easier said than done. After all, conventional funding channels can either be challenging or excruciatingly slow. This can not only hinder a company’s revenue but also its trajectory of success.

There is a solution, however. Enter alternative finance. Although a relatively new concept, in recent years, we have seen several SMEs dip their toe into the water. Side-lined by traditional financial institutions, alternative funding ranges from crowdfunding to peer-to-peer lending and offers organisations quicker access to capital with much less risk. That’s just the start of the benefits too. Here we delve into the most common types of alternative financing and what you can expect.

Asset Finance

Asset finance typically centres around a contractual agreement that allows businesses to purchase an asset through periodic payments. This includes hire purchase agreements, asset refinancing, equipment lease, operating lease, and financial lease, to help businesses to get the tools and tech they need that are indispensable for their operations. To mitigate risks of non-payment, these contracts and assets can be leveraged against collateral.

Invoice Finance

In the case of invoice finance, businesses can liquidate their outstanding invoices, rather than wait for the necessary payments and instead harness the owed revenue almost immediately. There are two different types of this agreement: invoice discounting and invoice factoring. The former allows companies the autonomy to manage their payments and the latter gives this responsibility to the agency.

Property Finance

This type of alternative financing uses a business loan leveraged against commercial or residential property. It is much more flexible than traditional loans and offers credit opportunities to those businesses even with minimal assets.

Unsecured Business Loans

These types of loans are also known as cash flow loans or term loans. They are ideal for businesses without tangible assets or those who don’t want to leverage against their assets such as startups. In this arrangement, the contract focuses on loan amount, interest rate and repayment terms.

Peer to Peer Lending and Crowdfunding

Peer to peer financing is a relatively new concept and connects investors with businesses via online platforms. Crowdfunding brings together a diverse range of individuals, offering them rewards or equity in return for investment.

Which alternative financing option is best for you?

The best alternative financing option for you hinges on your circumstances and needs. For this reason, businesses must consider various factors including the amount needed, the repayment structure, and the preferred tenure. For an informed choice, seeking the support of an alternative finance specialist may be beneficial. One thing to remember however is that alternative financing can offer a beacon of hope for SMEs yearning for growth. To effectively grasp the benefits of it, however, you need to find a modality that aligns with your unique demands.

Chirag Shah, founder and CEO of Nucleus Commercial Finance and Pulse has over 20 years of experience in the financial services industry and a deep understanding of the needs of UK SMEs.

In 2011, he founded Nucleus, a leading alternative finance provider, to offer flexible and tailored solutions for SMEs across various sectors and stages of growth. With an understanding of the challenges that UK SMEs face in the current economic climate, Chirag launched Pulse in October 2022, a free-to-use service that helps businesses and accountants gain insights into financial performance with AI-powered data visualisation and personalised dashboards. Chirag is not only committed to driving growth and innovation in the UK business ecosystem, but he’s also helping SMEs better understand their data to boost their profitability and guide them towards success.