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Refused A Business Loan? Here's What’s Available

Ever since the financial crisis of 2008, banks have become much more risk-averse, which has reduced their willingness to lend. Being refused a loan can be incredibly frustrating for small business owners. But it is not the end of the world. Rather than dwelling on the outcome, it’s important to find out why you’ve been refused a loan and consider the alternatives available to you. Here, we introduce the most common alternative finance routes available to you.

Asset-based lending

Asset-based finance involves borrowing money through using a company’s assets as the security against the loan. Assets cover a broad range of items ranging from property, vehicles, equipment or stock and must be stipulated within the terms of the credit agreement.

Asset-based finance is particularly suitable for:

  • Growth companies where funding requirement outstrips equity or retained earnings
  • Businesses with distinct seasonality. This refers to a business where a build-up of inventory is required to support a seasonal selling period
  • Restructuring existing funding arrangements

There are a number of benefits of asset-based lending. Offering flexibility, speed and stability, this source of finance has grown in popularity in the UK, with the number of UK businesses using asset-based lending having increased by almost a third over 12 months.

However, be aware that there are risks associated with this type of lending. The greatest being that a default on the part of the borrower may result in the repossession of important assets. Interest rates and terms will also vary depending on the lender and the amount borrowed.

Debt crowdfunding

Debt crowdfunding, sometimes known as peer-to-peer (P2P) lending or loan-based lending, is an alternative way for businesses to borrow money. In essence, it’s the same process as the traditional model of applying to a bank for a business loan. The key difference is that the finance is raised via a crowdfunding or P2P lending website, and the funds are contributed by multiple investors. It can be attractive to businesses seeking an alternative lending route for businesses which have been unable to raise finance by banks or credit unions.

Speed is the greatest advantage to the borrower, with fast decisions and release of funds often possible. Interest rates and terms will vary depending on the crowdfunding platform and the amount borrowed.

However, as with any investment opportunity, your money is always at risk and you should not invest it if you cannot afford to lose it. If a company cannot make its repayments or goes into liquidation, lenders may lose some or all of their investment. In the event of liquidation, crowd lenders are treated like any other lender and may or may not receive the proceeds from any assets sold by liquidators.

Invoice finance

Invoice finance is a form of asset-based finance. According to the Asset-Based Finance Association (ABFA), of the £20bn+ lent in 2015, 80% took the form of invoice finance. Borrowing is funded against accounts receivable to a third party for a percentage of their value (the assets, in this instance). In simple terms, a lender will pay you upfront on an invoice rather than you waiting 30 - 90 days.

There are asset P2P lenders who provide invoice finance, where multiple people or businesses bid for invoices. Fees, interest rates and terms will depend on the platform or provider, and whether a factoring route or asset-based loan route is more suitable will depend on the amount and commercial nature of the invoices.

The basic requirements for invoice finance are:

  • Your business trades with other businesses
  • You are a limited company or LLP
  • You offer industry standard credit terms
  • Some lenders have a minimum monthly invoices sent per month

There are a number of benefits to this type of finance. From flexibility to helping to reduce the risk of late payments, decisions to lend against invoices can often be made faster. Since invoice finance is currently unregulated in the UK, you need to be careful to understand all of the costs, fees and charges levied by the providers, and especially to avoid hidden fees.

Merchant cash advance

This alternative business finance model uses a card terminal as the basis for lending. The lender’s relationship with the card terminal provider allows them to take a percentage of the revenue paid via each card payment; it’s taken at source. These percentages form the loan repayment, rather than a fixed monthly sum. For this reason, it may be more suitable for businesses with seasonal or variable monthly revenue; it’s also one of the few areas of business borrowing where there is leniency regarding credit because they have access to your sales. Percentage rates and terms of repayment will vary according to the lender and the nature and turnover of the business.

Businesses can apply online here at NextFin for crowd-based lending, but please do be aware that borrowing can entail significant risk

Author: Sacha Bright & Oliver Murphy


To the best of our knowledge, the information we have provided is correct at the time of publishing. Sacha Bright is not a solicitor or accountant and we recommend that you seek professional advice on any topic discussed.

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