Traditional business loans are a popular way to secure funding, but they’re not the only option available to a UK business. Whether the need is to manage cash flow, invest in growth, or navigate a challenging period, there are alternative financing options tailored to diverse business needs.
Here’s a guide to the most effective alternatives to a business loan and how they can benefit your company.
- Invoice Financing
If a business struggles with late customer payments, invoice financing can help. This solution allows the unlocking of cash tied up in unpaid invoices, providing immediate funds while the company waits for its customers to settle their accounts.
- How it works: A lender advances a percentage (usually 70–90%) of the invoice value upfront. Once the invoice is paid, the remaining amount (minus fees) is released.
- Ideal for: Businesses with long payment terms or those facing cash flow gaps.
- Benefits: Quick access to funds, reduced reliance on payment schedules, and improved cash flow predictability.
- Asset Finance
Asset finance enables the acquisition or lease of essential business equipment, vehicles, or machinery without paying the full cost upfront. There is also the ability to release funds tied up in assets already owned through refinancing.
- How It Works: Regular payments are made over an agreed term, and depending on the agreement, the business can own or return the asset at the end of the term.
- Ideal for: Businesses needing expensive assets for growth or operational improvements.
- Benefits: Preserves cash flow, spreads costs, and provides access to the latest equipment.
- Merchant Cash Advance (MCA)
A merchant cash advance is a flexible funding option for businesses that take payments via card terminals. Instead of fixed monthly repayments, the lender takes a percentage of the daily card sales.
- How it works: A company receives a lump sum upfront, which is repaid as a portion of future card transactions.
- Ideal for: Retailers, restaurants, and other businesses with fluctuating income.
- Benefits: Repayments adjust with sales, reducing financial strain during slower periods.
- Trade Finance
Trade credit, also known as supplier credit, allows the purchase of goods or services and to pay for them later, typically within 30, 60, or 90 days.
- How it works: Suppliers agree to deferred payment terms, giving time to generate revenue from the goods before settling the invoice.
- Ideal for: Businesses needing stock or supplies to meet demand without upfront payment.
- Benefits: Boosts cash flow and provides credit if payments are made on time.
- Supplier Finance
Supplier finance helps businesses optimise their cash flow by paying suppliers promptly while extending their own payment terms.
- How it works: A business partners with a finance lender to pay its suppliers upfront, while the business repays the lender at a later agreed-upon date. The supplier gets paid quickly, and the business benefits from extended credit terms.
- Ideal for: Companies with strong supply chains, such as manufacturers, wholesalers, or retailers, looking to maintain good relationships with suppliers while managing their own working capital effectively.
- Benefits: Enhances supplier relationships by ensuring on-time payments, improves cash flow for both parties, and often leads to better negotiating power with suppliers.
While traditional business loans are valuable, alternative financing options can offer greater flexibility and tailored solutions. Whether a business is looking to bridge a cash flow gap, invest in equipment, or fund growth initiatives, there’s a financing method to suit every need.
For further help please contact our business finance specialists by calling 01993 706403 or e-mail enquiries@ngifinance.co.uk.
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