Ever since Covid-19 hit the UK back in 2020, many small businesses all over the country have suffered an indefinite period of financial instability. For the businesses that have managed to survive the tough lockdown restrictions, the road to recovery is looking to be anything but smooth.
There has been an increased number of SME’S (small-medium businesses) that have been denied the traditional bank loans. Which has left many businesses being forced to turn to alternative funding options for financial support.
The alternative funding In the UK from companies such as Nucleus has seen a boom in the last few years. This article will outline what alternative funding is, and the different types of funding that are available to your SME.
What is alternative funding?
Alternative funding in simple terms is a way of financing your business, that is away from the traditional bank loans or government schemes. It’s the best course of action for companies that have been rejected for bank loans in the past or have a poor credit rating. Sources for alternative funding are available widely online with a vast number of options open to struggling small business. We will delve into these options further below.
Business cash advance
Alternatively known as a merchant cash advance or a PDQ loan. A business cash advance is a short-term unsecured cash loan. This means the loan is dependent on the lender having a good credit score than having to exchange any type of collateral. There are no fixed payments each month. Instead, part of the loan for example 10% is automatically repaid every time a payment is processed on the card machine. The more card payments the quicker the loan will be paid off.
Crowdfunding
Crowdfunding in an extremely popular way of gathering funds through a series of individual investors. Relying on contributions from several backers. The business will need to set up the desired amount they hope to raise. There are several different types of crowdfunding these include. Peer -to-peer lending, equity or donation and reward crowdfunding
Pitch competitions
Pitch competitions are contests where business owners present their idea in front of a live audience and jury for example Dragon’s Den. These types of funding are for those who are starting out in the business world and are yet to establish a name for themselves.
Angel investment
An angel investment or private investor is an individual with a high net worth that provides financial support to SME or entrepreneurs. In return the investor will receive a stake in the business. Typically, this angel investor is someone that is already related to the business or is a family/friend member.
Which ever type of alternative funding option you choose it’s important to make sure it is the right option for your business, that you are eligible and that you understand the risks involved etc. involved.
