The benefits of alternative business finance

The benefits of alternative business finance

The benefits of alternative business finance

Thanks to the continued rise of the alternative business finance market since the 2008 financial crisis, enabled by significant advancements in online technology platforms, there are now more options than ever for SMEs looking for alternative ways to augment their cash flow, close gaps in working capital, and fund their growth aspirations.

Capital when it’s needed most

The range of alternative business finance solutions aimed at SMEs has grown significantly over the last several years. And with over half a million new small businesses created every year in the UK alone, they serve a huge market.

Common types of alternative finance include the following:

  • Peer-to-peer lending
  • Crowdfunding
  • Asset based finance
  • Invoice finance
  • Business cash advance
  • Business loans
  • Supplier payment finance


From asset finance programs that provide a way for companies to acquire essential equipment without having to pay the full cost up front, and invoice finance built upon the value of outstanding customer invoices, to insurance-backed, unsecured supplier payment solutions offering a rolling credit facility to successful businesses with temporary or seasonal working capital requirements, the flexibility offered by the alternative finance market means that whatever your business requires, there is a product designed specifically to inject capital and funding exactly when and where it’s needed.

Indeed, the UK Government has been supporting the development of alternative finance for some time. The British Business Bank, a development bank wholly owned by the Government have unlocked over £10billion alongside other investors to support economic growth, including supporting Funding Circle, one of the UK’s largest peer-to-peer lending platforms.

An agile response to managing cash flow

If your business is maturing and has growth ambitions in its sights, then more often than not, it will experience the pain of cash flow shortage. These working capital obstacles can affect even the most successful organisations, and are not necessarily the sign of a struggling business; indeed they may be representative of a company that is growing so quickly that its ambitions and opportunities begin to outstrip its own capital status, causing negative cash flow that inhibits or prevents further growth.

The rise of non-traditional business models, importing, and software-centered organisations has coincided with a tightening of lending criteria to create demand for more flexible, business-centric finance solutions. SMEs that don’t necessarily have the tangible assets required to secure traditional finance yet are still proven to be successful require a range of lending solutions to meet their evolving needs.

More traditional finance solutions often do not have the requisite agility to respond efficiently and appropriately to peaks and troughs in cash flow demand, or the needs of a rapidly growing yet asset-poor business. The alternative business finance market is the direct response to this evolution.

When looking from a growth-enabling cash flow perspective, the benefits afforded by alternative business finance can be summarised as follows:

Flexible criteria

The lending criteria common with most forms of traditional business finance means that often for those businesses that do not have substantial tangible assets, they may miss out on the necessary funding for closing seasonal gaps in working capital or seizing growth opportunities, whether that be taking on new larger projects or orders, scaling up the business or working with preferred suppliers that don’t offer credit terms.

The range of options now available means that successful businesses can approach lenders without traditional asset-based backing and still come away with the funding they require to grow. Indeed, the huge growth in the industry itself means more competition, and therefore more reasonable terms for applying businesses. With innovations such as insurance-backed and peer-to-peer lending allowing credit to be secured against the strength of the business rather than its tangible assets, opportunities for growth become available for more organisations.


The above flexibility and lack of reliance on physical assets now means certain forms of alternative lending can be used in conjunction with traditional lending to form a complete, more well-rounded financial credit package to suit the particular vicissitudes of your cash flow situation. You no longer have to decide upon one route or another; many traditional lenders now partner with alternative business finance providers to deliver the most suitable financial package for their customers.


The SME-centric design of many alternative business finance credit facilities means that they can be used when needed to pay any invoices when they appear to enjoy cash buyer status with key suppliers and free up working capital that is tied up in late customer payments or seasonal irregularities. Whether it’s to purchase machinery, increase imports, strengthen inventory for demand peaks, initiate a supplier relationship to scale the business, or secure investment for growth, the options for how you use the finance are there.

Speed and service

You may have heard of the term ‘Fintech’. A shortening of ‘Financial Technology’, when applied to alternative business finance this essentially means that advances in online technology, connection speed and security, and the development of sophisticated and simple to use online platforms now allows for unprecedented efficiency as well as enabling personal customer service.

With many alternative providers offering finance approval in as little as 48 hours, this technology also allows faster applications, faster approvals, faster communication, and an all round more agile service. Crucial when so many companies rely on an injection of capital immediately, whether because of tight cash flow or time-constrained expansion projects.

And with many alternative finance providers being SMEs themselves, they are often seasoned specialists when it comes to the needs of their customers.

Effective cost management

Because alternative finance providers often price their facilities differently from traditional business finance providers, it gives the SME the ability to choose the pricing model more suited to it. For example, providers that only charge a transaction fee as a percentage of each invoice payment allow a business to work on closing the working capital gap without feeling the pressure to borrow over a longer term and avoid further unnecessary cost.

Providers that allow an open credit source with minimal or no non-usage fees allow you to choose when and how to factor in the cost of using the facility to your business, while longer credit terms mean you can tailor your repayments to optimise profits and strengthen cash flow.

Alternative finance providers also offer alternative options in terms of repayment schedules and covenants, allowing businesses to make repayments in accordance to their own revenue streams. If one-off payments are required, then simple products such as single invoice finance can provide a swift and cost-effective remedy without tying a business into a lengthy contract.

Facilitated growth

Choosing the perfect financial solution for your business needs means you can grow your business in the direction and using the methods that it naturally demands. If your business experiences seasonal peaks and troughs, choosing the right alternative business finance solution will help smooth these out, meaning clearer financial projections, more linear growth, stable finances and a healthy bottom line. If you’re looking for a longer term loan to bridge a significant scaling up of your business, then a wide range of providers with varying terms are also available.

Improved business terms

Using alternative finance to close working capital gaps means your business can be more flexible with both its suppliers and customers. Leveraging cash buyer status to negotiate better supplier terms means securing larger orders and a healthy supply chain, while freed up working capital facilitates longer payment terms to customers.

The growth of the alternative business finance market has created choice, and that choice means competition and therefore more reasonable terms for businesses. With so many options to choose from, the industry has grown and evolved to meet the changing needs of today’s SME. With a recent industry report by the Cambridge Centre for Alternative Finance estimating that borrowing will surpass £5 billion in 2016, now is the time to consider how taking the alternative route could benefit your business.

The benefits of alternative business finance