Although it is common for people in business to approach banks for finance, there are other options available that may be a better fit for your business. Non-bank lenders may have lower interest rates and charges, and be able to make loans over a longer period than a bank. They can also be less restrictive about high loan to value and issues like poor credit rating or experience of recent losses.
It is important you read all agreements carefully before you borrow from a non-bank lender and find out if any assets will be required as security.
If you are interested in obtaining finance from a non-bank lender, consider the following:
1. Commercial loan providers
Commercial loan providers - also known as non-banking financial institutions - are organisations that provide financial services like loans and credit facilities, but don't have a banker's licence. This means they cannot take deposits from the public or offer normal banking facilities such as overdrafts. However, they can have less restrictive lending criteria and may be a useful and competitive source of funding.
Commercial loan providers in Northern Ireland include:
- NI Small Business Loan Fund provides unsecured loans to individuals, private companies and social enterprises in the small, medium and micro enterprise size range.
- Growth Loan Fund provides unsecured loan finance to SMEs that can demonstrate strong growth and export potential.
2. Social and community lending
You may be able to borrow money from a credit union which is likely to be more affordable than a bank loan. There are also various lenders that offer loans to disadvantaged groups, community businesses and social enterprises. See social and community lenders.
3. Joint ventures and partnerships
One way to increase resources is to enter into a joint venture with another business. This can offer many advantages - such as increased capacity, access to new markets and the availability of greater technical expertise. See joint ventures and business partnerships.
4. Factoring and invoice discounting
It may be possible for you to raise funds against unpaid invoices. Invoice discounting, factoring or supplier finance can all be useful methods to improve your business' cashflow. See factoring and invoice discounting.
5. Equity finance
You could sell shares in your business if you want to raise long-term finance. This would mean you won't have to repay the debt or pay interest, but it will involve partly giving some ownership of your business and its future profits. There are various sources of equity finance, including venture capital, the stock market and business angles. See equity finance.
Crowdfunding is where a number of people each invest, lend or contribute small amounts of money to your business or idea. If you seek funds this way, you would typically set up a profile of your project on your website then use social media and various networks of business, family and friends to raise the money. See crowdfunding.
7. Family and friends
Family and friends can offer credit on a flexible, long-term and low-cost (or free) basis. You should make sure that the terms of any loan are clearly understood by both parties. See financing from friends and family.
8. Government financial support
If your small business is struggling to access bank finance, there is a government scheme in which the UK's biggest banks will pass on details of any businesses they have rejected to three alternative finance providers. These are:
If your business is new or expanding, you could be eligible for business development grants or other government support schemes. See grants and government support.
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