When running a business, especially an SME or startup, funding is one of the most crucial aspects when gearing towards success. Whilst bank loans used to be the most common source of finance, the alternatives which exist today have become very popular, largely as a result of their flexibility and diversity.

The main alternative lending options differ a great deal in terms of their uses and conditions, but they all offer an effective means of funding different types of business. Here are the main sources of alternative funding for UK businesses.

Peer-to-peer funding 

The peer-to-peer (p2p) lending sector has been growing rapidly in recent years, with countless businesses now using p2p funding methods to finance their operations. P2p lending covers many different platforms and essentially relates to businesses which lend to other businesses.

Typically, p2p finance is very accessible, with funds often being paid out to businesses within days or even hours of them applying. Many of the most common alternative finance options are classed as p2p.

Invoice financing

This method of alternative funding is incredibly effective for those businesses which invoice their customers. It involves a lender, such as MarketInvoice, forwarding a business a proportion of the value of its invoice/invoices, which is then paid back once the customer has paid in full (minus the lender’s fee).

This helps strengthen cash flow by completely bypassing the lengthy waiting times of between 30-120 days for payment of invoices. It is worth noting that there are different types of invoice financing, including discounting and factoring.

Venture capital

A wealthy individual (or group of individuals) who invests in businesses using their own money is known as an angel investor and angel investment is another popular source of funding. To receive angel investment, a business needs to have a promising model and the potential to successfully grow when invested in.

One of the main benefits of this investment method is that the ‘angel’ often has a vast amount of business experience themselves, meaning they can take on an advisory role and help steer the business towards success. After all, they will want to protect and nurture their investment.

Business loans

For a fast injection of capital, unsecured business loans are an effective option. The business receiving the loan usually needs to meet certain requirements, such as having a minimum annual turnover.

Interest is charged on the loan, and repayments are often made on a weekly basis over the period of a year. Business loans can help with financing operations or purchasing new assets, such as equipment, which will help the business to grow and expand.

Asset financing

Similar to invoice financing, asset financing allows a business to receive a loan by using their assets as collateral against the loan. This could include accounts receivable, inventory and equipment.

This allows them to receive funds quickly, again without a lengthy application process. Once they have received funds, they can then use them for financing anything the business needs, which may include purchasing newer, more updated assets.

These are some of the main alternative finance options available to businesses operating in the UK. They are used by businesses of varying sizes and types, and each has its own unique advantages in terms of accessibility and repayment terms. Nearly all of them can help businesses to achieve faster growth through giving them access to the funding they need.