Recent reports show that mainstream lending to small and medium enterprises (SMEs) in the UK has gradually declined. According to a report by Funding Options, the decline has led to the loss of almost £2.9 billion in revenue. The report is in agreement with the political consensus which claims that the decline has affected individual businesses, as well as the economy as a whole.
Nonetheless, hope is not lost. Businesses can still get the funding they need through alternative finance (AltFi). Taking advantage of AltFi will enable small businesses to prosper, generating more revenue for themselves and the economy. Some of the ways how AltFi can be used to facilitate growth of small businesses are:
1. Get payment for old contracts to clear the way for new ones
Invoice finance enables businesses that trade on credit to get paid for finished work within days. Once the business gets an invoice from a customer, the company can sell it to the lender and get up to 90 percent of its value. Once the invoice is paid, the business gets the outstanding balance minus the lender’s fee – which is normally between 2 and 4 percent. This ensures that there is adequate cashflow to service new contracts even before getting paid for the old ones.
2. Operate globally
Previously, foreign trading required large amounts of working capital. This has been eased by trade finance which makes it possible to finance the whole supply chain, and make your international trading run smoothly. In this case, you partner with the trade financier who provides the required capital in exchange for a share of profits. Additionally, trade financiers can help you secure better deals.
3. Get a loan within your means
Traditional lending is largely inflexible as it requires borrowers to analyze their accounts and projections in detail before agreeing on how much to borrow. It is always a big risk to take on a traditional loan, even after looking at any upcoming scenarios; both the good and the bad. It gets worse if the borrower is unable to service loans as per the loan terms. This has been changed by revenue loans which are agreed upon based on the business’ turnover, and repaid as a percentage of it. The flexibility of revenue loans enables businesses to repay their loans smoothly by taking advantage of good financial times.
There are several other ways in which individual businesses can use alternative finance to increase their revenue, irrespective of their sector. This is good news since AltFi can offer help to all types and sizes of businesses, giving all a chance to benefit and thrive.