It is something we have witnessed many times throughout our time in business, and now research has proven that a vast majority of small to medium businesses are unaware of the alternative funding options available to them. In fact, according to a report, 75% of businesses had never looked further than their own bank.
This is a disappointing figure for the team here at Zodeq as, in reality, alternative finance options can be a great way for SMEs to gain vital working capital in order to grow their business. It is often a misconception that some finance options are simply there for businesses that have been refused a bank loan or hit the limit on their overdraft, however, this is not that case.
Each business will have their own individual set of requirements, that a funding option must meet, therefore whilst one business is ideally suited to an overdraft, a different business may be more suited to invoice finance. Take a look below as we explore some of the additional financing available to SMEs throughout the UK.
Ideal for businesses that struggle when waiting for payment from clients on 30, 60 or 90 day payment terms. Invoice finance, or sometimes referred to as invoice factoring, allows businesses to release funds from an invoice as soon as it is raised. The finance provider will chase for payment for said invoice, and once funds have been received, the remaining percentage is released. This approach is extremely flexible, and allows businesses to borrow in line with its sales ledger.
Invoice discounting works in a very similar way to invoice financing, however instead of a finance company chasing for payment, you are ultimately responsible for chasing. Subsequently, your clients will be unaware that you use a financing facility.
Both invoice financing and invoice discounting will improve the cash flow of a business, and due to the fact that it is not a loan, it does not impact a credit rating.
Asset based lending
Asset-based lending can work in two ways; firstly, it can allow a business to release any capital tied up in business assets (e.g. vehicles or machinery). Alternatively, asset lending can provide a business with the finance to purchase certain assets to help move the business forward. This is the perfect choice for those wanting to expand their service offering but are being held back by lack of working capital in order to purchase the necessary equipment to do so.
There are a number of options available to SMEs, however it is extremely important that businesses receive the best possible guidance when it comes to choosing which avenue to go down.
Are you considering alternative finance options for your business? Get in touch with our team today to discuss your requirements and hear our recommendations for the best option for your needs.