Alternative Finance - What Does This Mean For Our Clients?

Alternative finance in simple terms connects businesses that need money with people who want to lend it. It tends to be more transparent in relation to fees and eligibility as well as being more flexible.

The challenge is making them aware of the opportunities they have to raise the funding they need.

There are several forms of alternative funding the below are some of the most common:

Crowdfunding

Individuals or businesses invest in a business idea in return for either a share of the business or another reward. Rather than looking for one larger investor they can attract a ‘crowd’ of small investors who may also become customers or supporters.

A good example of this was ‘Brewdog’ who raised £4.25M in 2013 through offering shares to ‘fanvestors’ in return for lifetime discounts at their bars and online.

Spot Invoice Trading

Businesses borrow short term money against the value of individual invoices allowing them to access money quickly without having to enter into a more formal Invoice Finance arrangement.

This is useful for businesses that have a short term cash flow need

Peer to Peer /Marketplace lending

Businesses borrow from individuals or organisations usually through a third party website. These are in the form of loans either secured or unsecured.

This can be for loans from 6 months to typically 5 years with decisions made quickly

Probably the largest area of growth in the Alternative market over the past few years

Loans are available to a wider variety of businesses from a growing number of providers.

Angel Investors

Loans from individual or high net worth groups of investors in return for a share in the business

Usually based on an auction style system the difference to crowdfunding is normally that these investors are more experienced business people.

This can take a little longer to arrange and is normally for slightly larger amounts of funding. It tends to also be in general for more established businesses with some track record.

The above is just a few examples of what is available in the market today. The banks may have become tighter in their lending but it could be argues that business owners have never had more choice in where to borrow than in the current climate, they just need to know where to look and what may suit their purposes better.