Alternatives to crowdfunding

With 84 per cent of entrepreneurs planning to raise multi-million pound investments in 2018, it’s no surprise that ‘crowdfunding’ has been revealed as the UK’s most searched for business funding term of last year.

The term ‘crowdfunding’ was significantly higher than searches for ‘business loan’ and ‘bank loan’ according to accountancy and business advisory firm Cowgill Holloway. Searches for ‘asset finance’ and ‘invoice finance’ remained very low. This indicates that business decision makers are still not aware of all the options.

So, what are the alternatives to crowdfunding?

Invoice finance

Invoice finance is a fast and flexible way to secure loans based on the value of a business’ outstanding invoices to other companies. For a small fee, a network of investors will provide an advance of up to 90 per cent of the invoice value. This enables businesses to access funds that may not have otherwise have been available for up to 120 days.

Most banks offer this solution, however there are some challenger brands who are very competitive and who offer comparative rates and slick application processes. This can be much more expensive than a bank loan but can plug short term gaps in cash flow and offer admin support to collect your outstanding invoices.

Asset finance

This option allows businesses to spread the cost of investing in equipment to run their business efficiently. This could range from computer systems, software, new machinery or commercial vehicles. It breaks down the payments into more manageable instalments.

This method has less of an impact on business cash flow and can yield tax benefits in some cases. Asset finance can be arranged in several ways, through leasing, hire purchase and contract hire.

Merchant cash advance

These are a simple form of unsecured funding, which is paid back based on credit and debit card sales, meaning repayments are manageable and mirror business performance.

Approval rates are higher than many other forms of finance and up to one month’s business earnings are available.

Although the product is extremely flexible for a business this can be a lot more expensive than high street loan.

Peer-to-peer lending

This online process pairs businesses looking for loans with investors who have available savings or capital. These loans can be unsecured or secured and would have fixed payments like a standard loan.

While full financial records will have to be submitted, it offers the option to access finance within a matter of days or weeks, rather than months. Rates tend to be competitive if a little more expensive than banks. However, the process of accessing your finance can be a lot easier. Peer-to-peer lending is similar to crowdfunding in that both raise finance from a number of investors who pool together. However, with peer-to-peer lending you don't give away any equity but pay interest on the money you borrow.