Gone are the days of going cap in hand to the business banker clutching armfuls of finger in the air financial projections produced, at cost, by your accountant.  Gone also are the days of waiting interminable amounts of time jumping through endless banking hoops whilst our “local” banker presents funding cases to far flung decision makers.  Gone are the days of being forced to proffer more and more personal security to support the funding requests of a growing company.

With the SME denied the help of traditional banks, largely due to the outcome of the 2008 crash and the impact of the Basle Accords on bank liquidity ratios, but with demand for vital sources of working capital still there, the number of alternative finance providers ready to plug funding gaps has grown apace.

Businesses come in all shapes, sizes and hues and, as a consequence, every business has its own unique funding requirements.  Alternative finance providers have emerged to focus on specific segments within the SME funding mix.  This is great news for the SME exploring its funding options, but the myriad of potential solutions does create its own challenges and the plethora of new players delivering multiple options can make it somewhat overwhelming for the uninitiated to tread a well planned path through the maze of new finance providers.

In an unstable economic climate banks are less likely to lend – especially to risky business investments. In today’s unpredictable financial market, it is becoming more and more difficult to get approved for a bank loan, which is why the trend for alternative finance solutions keeps on growing. Without these alternative funding options, many businesses would have ceased trading or would-be successful property investors wouldn’t have been able to buy a second property.

In 2014, a record £1.74 billion was raised through alternative finance models. So isn’t it time you found out more about it?

Advantages of Alternative Finance

Many alternative finance solutions are ideal for SMEs or start-ups, not just because they will struggle to receive traditional funding, but because they can also benefit from better terms.

• Ease of application
• More chance of guaranteed acceptance
• Flexible funding and repayment options
• More favourable terms for the business

Read on for a comprehensive guide of the commercial finance services available.

Types of Alternative Finance

There are many different variations of alternative finance, and it’s crucial to choose the right model for your business. There’s also hundreds of different platforms to apply for alternative finance depending on which specialist funding you choose. Some brokers will specialise in all types of alternative finance. Here is a basic rundown of some of the most popular alternative finance solutions.

Business loans

Whether you need a short term cash injection to cover the costs of staff wages and stock, or you’re investing in a new business premises, a business loan could help. An alternative finance provider can raise finance for business owners without the traditional application process at the bank which can take weeks to approve.

Bridging finance

Need to raise some capital at short notice? With bridging finance you can have the cash in your bank at very short notice, to buy a property at auction or solve your cash flow problems before a large payment is to be made. Bridging loans can be up to £20 million but need to be repaid within 12 months so this is a short term option.

Invoice finance & invoice trading

Many SMEs have a cash flow problem because invoices take too long to be paid and there are constant outgoings to pay. With the help of invoice finance, businesses can release the cash straight away to be used elsewhere and keep money running through the organisation. This type of finance is fairly low risk because you won’t be borrowing any more money than you’ll have coming in.

The time when a company was obliged to hand over the whole of its debtor book to a factor or invoice discounter is long gone as is the time of restrictive contracts from which it is prohibitively expensive to escape.  For companies trading on credit terms with their customers, it is now possible to sell invoices on in a selective manner, entirely at the SME’s discretion, to a pool of individuals or institutions again through a funding platform. Funds are then received immediately to a pre defined percentage of the invoice’s value with the balance less fees being received at invoice collection delivering instant cashflow from working capital tied up in unpaid invoices.  Structures also exist that enable 2 or 3 year loan arrangements, either fully amortising or bullet repayment, driven by the value of the SME’s debtor book.

Peer to peer lending & crowdfunding

Peer to peer lending is an attractive alternative finance solution for commercial borrowers. In most cases you’ll receive a better interest rate and it works the same as a traditional loan – the only difference is you’re lending from individual investors rather than a financial institution. Banks aren’t the only financial institutions with large sums of money to lend. Wealthy individuals can be matched with small businesses to offer an alternative source of funding with more flexible terms.

Debt transactions between individuals and/or institutions facilitated by a platform.  Many individual contributors make up the sum ultimately borrowed with terms between 6 months and 5 years typical. Interest rates can vary from as low as 9% or as high as 18-20%, dependent on the quality of the proposal.  Funds can be delivered in a matter of a week or so in some instances with potentially very little in the way of business plans/budgets being required.  With many platforms in the market, it is essential to work with a platform that will accept the credit risk of your business and present your funding proposal to potential lenders.  If going down this route, do your homework as the character of each platform is very different…

As implied, the sale of a proportion of your business to a number of individual and/or institutional investors in return for investment.  Again, there are a number of platforms who facilitate these types of transaction and they each are different in nature and what type of deal they are looking to propose to their investor base.

Asset finance

There are many different types of asset finance, and this solution works well for industries such as farming where businesses have expensive equipment to purchase and maintain. Business owners can free up cash in their assets to use elsewhere, or spread the cost of machinery over a length of time. Secure a comfortable loan by lending against company assets such as machinery, vehicles or equipment. It is a way to release cash tied up in business assets for you to use elsewhere.

Pension Led Funding

A good pension is a valuable asset which can be used to secure an alternative business loan. Mechanisms which allow SME owners to use their pension funds to invest in their own businesses within a HMRC approved and potentially tax efficient environment.

Merchant Cash Advance

Take card payments as part of your sales? If so, you could benefit from a merchant cash advance. This is an innovative funding solution which is related to your monthly turnover in card payments. You repay the funder through a percentage of your daily card receipts so it a short term solution reducing the chance of long term debt.

Interested in the benefits of alternative finance solutions but not sure which lending option is right for your business? Well you’ve come to the right place. Here at Genie Lending we specialise in a variety of alternative finance options which can be tailored to your business needs. From short term and long term loans, secured and unsecured business loans to commercial and buy to let mortgages, we’re guaranteed to have a suitable option.

Updated: May 2018

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Cash flow funding is a solution to the problem. There are various forms of finance which can help businesses better manage their cash flow and avoid the downward spiral into debt. Alternative finance providers offer direct solutions to help companies balance the books, without high interest loans. The right cash flow funding solution depends on the type of business and its finance needs. Here are the main types of funding available for cash flow purposes.

Merchant Cash Advance

This type of finance is perfect for any business which takes card payments – shops, pubs, salons, cafes, B&Bs, car dealers. It is a fast and short term finance option for businesses, allowing them to lend cash based on their monthly turnover from debit and credit cards. If you have been taking card payments for more than four months then you are usually eligible for an immediate cash advance of up to £500,000.

Invoice Finance

Another way of raising fast funds to improve cash flow is by invoice factoring. If you need the money for the service you’ve provided sooner rather than later, an invoice financier can pay up 90% of the invoice immediately. This allows businesses to free up capital that is locked away in unpaid invoices. It shortens the billing cycle and can help you keep on top of bills and staff costs, rather than having to wait 30-60 days for invoice payments.

Asset Finance

There are always finance solutions, even if you are operating at a loss or you don’t have security to put up against a loan. Asset finance is suitable for agricultural businesses, manufacturing companies or any other organisation which has expensive assets such as machinery or equipment. The funding is borrowed against business assets, from equipment to vehicles. You can also use asset finance to fund a new essential purchase, by leasing or hire purchase with flexible payments.

Getting a grip of cash flow can be really difficult, as you know what expenses you have but often money coming in is beyond your control. Don’t suffer in silence, get in contact with Genie Finance to discuss the range of cash flow funding options.

The post The Basics of Cash Flow Funding appeared first on Genie Lending: Business Loan Alternative Finance Specialists.

Re-evaluate your invoice terms

Bring all of your incoming and outgoing invoices together to identify the problem. If customer payments don’t have to be made for 30 days, yet your supplier invoices need to be paid is 21 days, then you have nine days where you have to stay afloat on nothing. See if you can negotiate longer payment terms with your suppliers and give an incentive to clients who pay invoices early. You could go one step further and create penalties for late payments. This could bridge the gap and solve minor issues.

Increase your prices

An easy way to boost your revenue is to carry out a small price hike. If you have to invest in stock on a regular basis, a small increase can seriously improve cash flow. Of course customers are never happy with paying more, so only do this if you think the business can fend off competitors who may undercut you.

Use the business credit card

Pay for more products and services with a credit card, and you’ll get an extra 30 days to pay it off. If you’re waiting for a big payment to be transferred then this is a simple plan.

Hire an accountant

If you don’t already use the services of an accountant, now is the time for a positive investment. As financial experts they will be able to analyse cash flow and give advice for a better system which works for the business.

Apply for Finance

If you need a bigger solution to bridge an ever growing gap in cash flow, then you may need some extra help. A business loan might not be the answer, but there are a range of new ways to borrow which can instantly reduce the cash flow strain. Invoice finance and merchant cash advance solutions are perfect for helping businesses to keep running without getting into unmanageable debt.

Worried about cash flow? Talk to one of our financial advisors today.

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