Alternatives to Traditional Finance
The financial services industry has changed a huge amount over the past few decades, however the majority of financial sources are still obtained from traditional ‘bricks and mortar’ sources such as the banking system or capital markets, and they take up by far the most space within the industry.
Why are people looking for alternatives to traditional finance?
Although traditional financing methods tend to work for a large percentage of the market, it absolutely doesn’t work for everyone. Traditional finance is often seen as quite inflexible, and many smaller and start-up businesses are unable to access products offered by traditional banks. The one-size-fits-all model that we often see with bigger banks doesn’t lend itself to every type of business, meaning that some find themselves stuck without a solution for funding.
Additionally, some companies have seen the effects that technical faults have had on large corporations such as RBS and NatWest and are keen to find alternative, safer solutions for their finances with less risk involved.
At FFP we are especially passionate about providing funding options for businesses who don’t fit into the traditional lending categories. We have seen first hand how much of an impact it can have for a small or start-up business to have access to the funds they need, so we have rounded up some of the key examples of alternative finance methods that you can use.
Examples of alternative finances
Thankfully for many businesses, a whole host of alternative financing methods have popped up in the past few years and are becoming more and more mainstream, making it easier for many smaller businesses to gain access to the finance they need to help their business grow.
Some examples include:
Peer to Peer lending
Peer to Peer (P2P) lending is a way for individuals to lend money to other people or businesses. P2P websites are used to bring together people who are looking to invest with those who need a loan, with the option to either choose who you lend to, or for your investment to be split amongst a selection of businesses automatically.
As a lender, you receive interest on the money you invest and your loan is repaid when it has been paid off.
P2P is considered quite high risk as there is no guarantee that the loan will be paid off, which can make it a tricky area for investors.
Crowdfunding is where you gather small amounts of capital from a large number of investors to finance a new project or business venture. Depending on how the fundraiser is set up, investors can either donate the money, or receive rewards such as interest or equity in the company that the money is being raised for.
Community Development Financial Institutions
A Community Development Financial Institution (CDFI) is a non-profit lender that can provide debt finance and support for businesses. Any loan is repaid with interest over an agreed amount of time, usually lending between £25,000 and £250,000 at a time.
CDFIs are locally based, flexible lenders that can provide huge benefits to businesses that have been declined by other, more traditional lenders. They also often offer mentoring and support services to help businesses grow and retain complete control of their finances.
There are so many ways to get funding for your business. Business funding can allow businesses to borrow money with flexible payments based on their turnover. Instead of having set dates for loan repayments, businesses are only expected to make payments when they themselves have been paid. Similarly to mortgage payments, if you are able to repay higher amounts at any point, then a higher percentage of your cash advance will be repaid, meaning your balance is cleared quicker.
Using business funding means that you are able to manage cash flow more easily and spend time focusing on driving your business, not worrying about outstanding loans and the effect this could be having on your finances.
FFP are proud to offer a personalised merchant cash advance service which has been designed to fit around your business needs – click here to find out more.
Let’s have a chat
At FFP, we provide a range of payment and loan solutions that can be tailored to suit your business. Our team of experts can be with you every step of the way, ensuring you have a stress-free and effective set up process.
All of our solutions include no setup fees, 24/7 customer support, contract buyouts, same and next day payments, assistance with PCI compliance and personalised packages.
To find out more, get in touch with us today.