Guide

Non-bank finance

Non-bank funding for short and long-term use

There are alternatives to standard business loans that you may find are more suitable for your needs - particularly if you need the money for a particularly long or short period. Some of these options are also available from banks. Your type of business and its current needs will determine the choice of provider.

Short-term funding

If you have a temporary cashflow problem, eg non-payment from a creditor, short-term funding may be able to help. Short-term funding sources include credit cards, payday loans and invoice finance.

Credit cards are available from building societies as well as banks, and these can be used to make business purchases using credit. However, it is important that you keep track of your credit card spending, as it is among the most expensive forms of credit - see business debit and credit cards.

Payday loans are very short-term loans that can be applied for online or over the telephone. Interest is calculated on the amount you borrow and the agreed repayment date, which can range from one day to a maximum of one month. Rates of interest can be high, especially when compared by APR, but can be cheaper than an unarranged overdraft. You should always check that the lender is reputable.

Invoice finance offers ways to access working capital by unlocking the value of invoices - although interest rates and charges apply on the cash advanced. There are three main types of invoice finance:

  • invoice discounting - this allows you to draw on funding secured against approved invoices
  • factoring - this involves you selling your invoices to your financier for them to process
  • supplier finance, also known as 'supply chain finance' or 'reverse factoring' - if your buyer offers this it can give the same benefits as factoring, but usually at a much lower cost

See factoring and invoice discounting.

Long-term funding

If you are looking to expand your business or fund a new product or service, longer-term funding and investment can help. Non-bank investors can be a good source for small businesses, as many are prepared to lend to riskier ventures, such as start-ups.

Equity finance can provide investment in exchange for a share of the company or its future profits. This could be through business angel or venture capital investment, or by issuing shares in your business - perhaps to family, friends or employees.

For more information, see:

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