4 alternatives to borrowing from the Big Four banks

Traditionally, when your small business needed an injection of capital, the Big Four banks were the place to go. Barclays, HSBC, Lloyds and NatWest offered a wide range of business loans and there were limited alternative routes to business finance.

But today, the major high-street banks are increasingly reluctant to lend to small businesses.

Let’s look at why small businesses are finding it harder to access funding, and four alternative routes to finance that your business could explore.

High-street banks are pulling back from lending to small businesses.

A recent survey from business lender, iwoca, found that 71% of SME finance brokers agree that mainstream banks are pulling back from small business lending.

The Big Four banks see small businesses as volatile, risky and less attractive as borrowers than larger, stable, corporate organisations.

This has led to ambitious UK small businesses finding it difficult to access funding. Without access to an injection of new capital, your business may find it difficult to fill the cashflow gaps, invest in growth or start new projects.

4 alternative routes to funding for your small business

Don’t worry, though, the news isn’t all bad. With the banks offering less funding, this has created an opportunity for alternative lenders and alternative routes to funding.

With high street banks no longer the obvious first port of call for funding, you’re free to consider the entire funding market and a range of brand new finance options.

Here are four potential routes to funding:

1: Non-banks and fintech lenders

In recent years, we’ve seen considerable growth in the non-bank lending market. Specialist online business lenders, like Funding Circle and iwoca, offer flexible, short-term loans without the lengthy and complex application processes you’d expect from the high-street banks.

Non-banks will generally focus more on your business performance and future revenue generation potential, rather than your business credit score. This is helpful for start-ups that have limited trading history, or businesses with poor credit scores.

2. Peer-to-peer lending

Peer-to-peer (P2P) lending platforms, like Folk2Folk, connect businesses seeking loans with a network of individual and institutional investors through online platforms. P2P is often a faster, more flexible alternative to banks, allowing you to quickly raise capital and to invest it back into your latest project or growth strategy. Unlike traditional equity funding through private investors, P2P doesn’t require you to give up any ownership stake in the business, so it’s a great way to raise money and stay in control of the business.

3. Invoice finance

Invoice financing through a provider like Kriya allows you to sell your unpaid invoices. This effectively gives you an advance on the money currently owed to you by your customers.The finance provider gives you a percentage of the invoice's value upfront, helping you to solve urgent cashflow issues caused by slow-paying customers. While you won’t be able to raise large sums of money this way, it’s an excellent solution for getting your cashflow under control.

4. Crowdfunding

Crowdfunding through a platform like Crowdcube or Kickstarter allows you to raise funds from a large number of people through an online platform.. There are several types of crowdfunding, including:

• Equity crowdfunding: selling shares in the company
• Debt crowdfunding: raising a loan from many lenders
• Rewards crowdfunding: offering products or perks in exchange for investment

Get your funding strategy sorted

Having a detailed funding strategy, and aligning it with your business plan, is fundamental to keeping your business well-capitalised and cashflow positive.