MarketInvoice is the leading online invoice trading platform. They offer fast, flexible cashflow solutions to help businesses grow. Piers Garthwaite from MarketInvoice talks us through the opportunities alternative finance provides growing businesses.

The problem of funding for growing businesses is an all too common one. For any company to grow it needs medium-term financial support to hire new staff, increase supply, buy more equipment, move to a larger office etc. In this blog, we look at the options your client has to fund their business and why alternative finance could be the key to growth.

There are several ways clients can fund growth for their business:

• invest previous profits back into the business
• take out a loan
• raise equity
• look for other sources of finance

The majority of businesses’ first port of call will be to ask their bank for a loan. As we can see from the infographic, banks are not particularly keen on loans at the moment, given the economic environment.

52% of small businesses say that the availability of credit is “poor” or “very poor” and around half say that credit is unaffordable. In the same period, net lending to SMEs is down at -£400m.

This has been a long-term trend: businesses don’t want the products and banks aren’t keen on offering them. The banks’ policy of belt-tightening has affected growing businesses across the UK.

“So how,” we hear you ask, “am I to help my clients?”

Selling equity instead of a obtaining a loan is one option, but there are a number of disadvantages to this, chiefly your client giving up some control of their company.

Other sources of finance could be a grant, an overdraft (although this is unlikely to be big enough to cover any significant expense), leasing and asset finance, invoice factoring or discounting and, what we will be looking at in this blog, alternative finance.

Firstly, some statistics

The size of the alternative finance market is £1.74 billion. When compared with the banks this is, of course, a drop in the ocean. However, the market has been growing at over 150% year-on-year. The peer-to-peer (P2P) business lending market alone is £750 million and has grown at an average rate of 250% in the past three years. Online invoice trading sits at roughly £300 million, with a growth rate of 174%.

Alternative finance has now matured and is mounting an ever-growing assault on outdated, slow and fee-heavy traditional finance.

The industry-leading Nesta report backs up these findings. 33% of P2P business borrowers believed they would have been unlikely to get funds elsewhere. 63% also said that they saw a growth in profit and 53% saw an increase in employment.

What are the main draws?  

For many, the main draws are what define alternative finance against the painful and outdated traditional banking experience:

1. Speed: it can still take up to 6 weeks to get a loan. Alternative providers use technology to build automated credit scoring systems. With the amount of data available online, there is no reason for a business to have to wait more than 24 hours to be accepted (or declined) for finance.
2. Simplicity and transparency: Standard contracts for bank finance are long and often have charges hidden in the Ts & Cs. Alternative finance tends to be more flexible and more transparent on everything, especially pricing. Most leading alternative finance providers have simple online tools to show how much your client will be charged dependent on the terms you choose.
3. Service: Most alternative finance providers are run by entrepreneurs and so they have a natural propensity to understand the concerns and aspirations of small business owners looking to grow their business.

For a growing business to be able to access funding within 24 hours, instead of six weeks, could be crucial to its future success in the modern digital age. Additionally, being able to understand exactly what your clients are getting and at what price will help immensely with financial planning at such a critical stage of a business’ life.

Having explored some of the options available to your client, we hope it’s clear there is a plethora of funding opportunities on offer for small businesses.

You don’t need to be at a loss when considering funding options, even if the banks have said no. Financial support can be fast, simple and accessible and, therefore, the lifeline that a growing business needs at a crucial developmental stage.

If you’d like to find out more, visit MarketInvoice’s website or give them a call on 0845 548 0508.

Twitter: @MarketInvoice and @piersgarthwaite.