Finance 16 September 2015

13 fast and flexible alternative finance options for small businesses

There are many options that small businesses might not be aware of
There are many options that small businesses might not be aware of

Many small businesses struggle to grow much beyond where they were when they started – while others see an explosion of growth, rapidly becoming part of the big leagues.

So what makes the difference?

The bottom line is that businesses only grow if you reinvest – but cash flow problems can make finding that spare capital challenging.

If you’re in that first category, putting in the effort but watching from the sidelines as other businesses get bigger and bigger, you’re probably wondering how these other businesses have managed to find the capital to reinvest, especially given how difficult it can be to get a bank loan.

Luckily, there are a number of innovative alternatives to the traditional lenders, offering fast, flexible, long- and short-term money lending solutions for small businesses looking to grow.

Here are 13 of the best:

(1) Venture capital and private equity

Both VC and PE funding are types of funding based on equity returns. In short, VC or PE investors will fund your business in exchange for an equity stake in the company, which they’ll generally hold for around five years before selling on.

The former invest in the early stages, betting on high-growth startups for example – while the latter invest in underperforming companies which need support. Both rely on the belief that, given capital injection, the business will rapidly grow.

(2) Public equity

Public equity is similar to private equity in that you exchange capital for an equity stake. With this form of alternative finance, though, your business becomes publically listed and you rely on the general public to buy and trade shares.

As an SME, the major public equity market you’ll be involved with is the Alternative Investment Marketing (AIM), whichspans the UK and Europe and isfocused on supporting growing businesses.

(3) Trade finance

Trade finance is an alternative finance option for exporting businesses, filling the funding gap in the import/export trade cycle. Trade finance eases cash flow issues that arise in the trade process, providing flexible working capital secured against traded goods.

(4) Supplier finance

Supplier finance, or supply chain finance, is a form of alternative finance that works between buyers (ordinarily larger businesses) and suppliers (generally SMEs) to release cash flow. The financier acts as an intermediary between the buyer and supplier, paying the supplier’s invoice in advance on behalf of the buyer, which allows the supplier to release cash flow while the buyer maintains longer payment terms.

(5) Peer-to-peer investment

P2P and crowdfunding platforms are a massively growing alternative finance market, allowing investors to lend directly to SMEs. P2P investment is offered in return for interest on money lent, while crowdfunding tends to be reward-based – receiving the finished product, for example – or in exchange for an equity stake.

(6) Angel investment

Business angels are generally high net-worth and highly experienced business people who invest time, money and advice into helping early-stage businesses on rapid-growth trajectories. It is more like business mentoring than simple cash flow injection.

Read on to find out about a government-led funding scheme, free capital and unlocking your pension.

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