Are you looking to inject some cash into your business? It can be tough for businesses both existing and new to access finance these days, especially from the banks. This has seen a rise in so-called ‘alternative lending’. It’s a term that’s becoming more and more popular, but what is it? And more importantly, is it something your business should be taking advantage of? Take a look at our quick guide to some of the more popular types below:
P2P or peer-to-peer lending
Peer-to-peer lending is a relatively new type of alternative finance and in many ways works in a way that is similar to online invoice trading platforms. That is, on one side you have businesses who are looking to borrow money and on the other side, there are investors looking to lend money.
They can be an attractive option for relatively new companies or those that don’t have the best credit score as the lending criteria is different than that you would find in a bank for example. Businesses are classified and grouped by various means, such as risk, potential reward and credit worthiness. That means that whilst a business may be turned down for a traditional bank loan, they may have a greater chance of getting a P2P loan from an investor willing to take a risk for a greater return on the loan repayments.
However, there are downsides. Getting a peer-to-peer loan is not guaranteed and the fact that many are done on online platforms means that there is the potential to overexpose both you and your business to excessive risk. Just because finance is available doesn’t mean it is the right kind of finance for your organisation and because you’re doing it entirely online without any form of broker to advise you, you could end up doing your business more harm than good in the long run.
Crowdfunding has been a bit of a buzzword over the last few years, but still many people don’t understand the intricacies of it. The idea behind it is that businesses who may be turned down by the traditional high street lenders for finance can instead appeal directly to small investors. This gives businesses access to a new avenue of finance as well as bringing business investment opportunities to the masses who can invest anything from a few pounds to thousands. It also can help new businesses with their marketing, creating a real ‘buzz’ before they officially launch.
However, crowdfunding isn’t without its downsides. If you think getting a loan from a bank can be slow and torturous, crowdfunding can be even worse. From the time taken to successfully apply to a crowdfunding platform (they don’t take just anyone) there is a huge amount of work involved in building up interest in your company/project which many people underestimate. If you don’t successfully reach your target amount then your crowdfunding project has been a failure because with most platforms, you don’t get to use the amount that has been pledged; it’s an all or nothing arrangement. Crowdfunding definitely has its place in the modern business environment, but if you’re looking for money in a hurry or have an existing business to run and don’t have the time to market your crowdfunding opportunity, it’s probably best to look elsewhere.
Invoice finance comes in two forms, factoring and invoice discounting. Both of these methods of alternative finance can give you up to 90% of your existing and future sales BEFORE your customer has been paid them, often within just 24 hours. Access to invoice factoring can immediately improve your business’s cash flow, enabling it to be more responsive to market conditions and give it the flexibility required to grow. Choosing non-recourse factoring can even protect you from bad debts.
There are some points to consider about using factoring. Of course there is a cost involved, but this is usually negligible when compared to the freedom and flexibility that the cash raised by invoice factoring gives you. The other is how you access invoice factoring services. There’s been a growth of online platforms that offer invoice discounting and factoring and whilst these may be suitable for some businesses, you can be faced with a huge choice of different factoring and discounting companies when using them who all may have slightly different offerings and ways of working. If you don’t understand EXACTLY their offer and their terms, it can prove a costly mistake as some businesses have sadly learned.
Here at Factoring Solutions, we’re here to guide you through your invoice factoring and discounting options. Our free broker service ensures that you benefit from over 40 years of experience in the industry, which means you’ll get the finance that is right for your business at a cost that is generally much lower than going direct. You’ll also have the peace of mind that you’ve got an industry expert looking out for you!
For an informal friendly chat, give us a call on 01827 707680 and remember that all of our services are completely free of charge.