It has been well documented that alternative finance is growing at terrific rate. In the past few years that banks have been reluctant to lend out money to small businesses so where the funding coming from.
Banks have only tended to part with credit if they believe the company requesting it is supremely low risk and has a large body of evidence to back up its forecasts.Whilst certain rejections made by banks are undoubtedly fair and responsible, a number of them are purely down to flaws within their credit scoring systems, which systematically destroy the prospects of a number of promising businesses by simply rejecting their applications for vital finance before even taking into consideration a range of equally important factors. Enter alternative finance from the wings.
Banks have sold out (if this is possible), and have forgotten that tax payers forked out billions in order to ensure their survival, instead sending aspiring businessmen into a vicious cycle of credit rejections and incurring the wrong kind of economic recovery; through consumer spending rather than business levels, which are key to labour productivity.The result of this has been that small business expansion has been hindered, whilst a multitude of pre-existing companies succumbed in the recession era due to a lack of finance in keys areas for survival. However, whilst it may seem as if banks are the only financial institution that can provide the money necessary for starting up your business, this is simply not true, and in reality there is a plethora of different funding access points that company heads can go to acquire money.
Where to look for funding?
Below are some suggestions for where you can go to obtain that vital funding for your business, as well as where you should avoid in order to give your company the best chance of success moving forward to the future.
Avoid payday loan companies:A recent business study revealed that the average small business requires just over £2,000 to fund its start up costs, which is a relatively low amount of debt to be taking on, regardless of who the lender is. This actuality, coupled with banks reluctance to part with their money has prompted a number of new businesses to utilise payday loan companies to fund their start up costs, which a recent study outlining that one in six new companies have utilised some form of payday firm. Whilst £2,000 may not seem a lot in terms of interest if acquired from a bank, the same cannot be said of an equivocal loan from a payday loan company, as their 3000%+ APRs mean that small businesses struggle to survive from the offset as they are forced to contribute a large proportion of their finance towards interest payments and other charges. The hardship in which businesses have faced when trying to acquire funding is exemplified by statistics that highlight that just 20% of businesses have accessed bank funds in recent times, whilst only 10% have done so in their first year. However, if you are someone who is in this boat and are struggling to get funding from banks, then an integral thing to remember is to never utilise a payday loan company, as it will hinder your business’ expansion and financial stability as time moves forward. Putting unnecessary pressure on your business’ financial stability could push your business one step close to insolvency; with a worst-case scenario of a winding up petition being applied (for a limited company) if a creditor loses faith in your company’s ability to pay.
Peer-to-Peer and Crowdfunding sites:
Peer-to-peer and Crowdfunding sites will certainly begin to become more prominent in finance circles as the decade progresses, though it can be argued that now is the time to capitalise on their multitude of merits and utilise them for your small business funding purposes. Think of a world where the middle man (banks), does not overcharge the borrower for operational reasons, and instead the acquisition of finance simply comes down to matching someone who wants to lend money out with someone who desires to borrow it. This is the reality that peer-to-peer funding offers, and indeed borrowers often receive highly competitive rates on their loans due to the fact that there is no middle man charging a premium for their services. The funding is often distributed in the form of micro loans, meaning that the bulk of the debt you take on will be distributed amongst a number of creditors to minimise their risk, though this is not always the case and you may have to agree with other terms before you are given the funding you desire.
There are a number of prominent Crowdfunding sites that specifically tailor towards business loans, including SyndicateRoom, CrowdCube and FundingCircle. It is worth going to these places and checking out whether you can acquire the necessary funds for your business, though it is worth remembering that as it is investor orientated, and it is investors who will look to give you the funding, that your business will have to clearly display that it is not that high risk, and you will have to illustrate that your strategy is the right one to take in order to breed the highest level of success. As more investors and savers begin to start lending money out through peer-to-peer finance, the rates attached to loans will begin to go up unless the level of listed businesses increases as well, so it is worth accessing them now and utilising them for your financial needs, as there is arguably no better time to do so.
Get a grant; or enter onto an enterprise programme:
There are a multitude of grants and enterprise programmes that can be pursued by businessmen in order to acquire the necessary funding to survive initially, and obtaining them is typically dependent on how promising your product is and how well you convey yourself when you go in for your interview.
Young businessmen who are aged between 18 and 30 can apply for The Prince’s Trust, which supplies highly competitive loans of up to £4,000 to those who they believe have a good chance of success and show promise. Moreover, they will give you help with strategising your product, as well as tips to survive in the business world, which can give you the edge when you first start up your company. The loans you would acquire have interest rates that are no higher than 3%, and you can pay it off over 2, 3, 4 or 5 years, making it an excellent organisation to look into if you are young and need money to start your business.
Another prominent enterprise programme is the government financed Start up Loans scheme, which enables new businesses to obtain loans as high as £25,000 for just 6% interest and an initial year repayment ‘holiday’. Obviously there are a number of different criteria that you must meet in order to qualify, but providing you have a good product and are confident in yourself, you certainly have a good chance of acquiring those funds without having to utilise a bank.
There are a number of other places that you can go in order to acquire a grant, or enter onto an enterprise programme, and you should always remember that if you are initially rejected by a bank for your businesses funding purposes, then look around the internet to find which organisations you can contact to address this problem. The reality is that the more banks strangle the expansion of businesses, the falser and worse the nature of the country’s economic recovery, and it is up to you and many others like yourself to act now, buck the trend and acquire those vital funds necessary to expand your business. Peer-to-peer schemes and utilisation of enterprise programmes will undoubtedly rise in prominence moving forward in the future, and acting now and being part of the first people to do so will give you a competitive edge in an era defined by tight lending.