Alternatives to High Street Banks when raising business finance

I need business finance but what are my alternatives to the High Street Banks?

Raising funds could help you develop longer-term opportunities for your business (for example - purchasing new business premises, entering new markets or acquiring a competitor).  It can also be a sensible option for making a shareholder exit possible, facilitating a management buy-out or simply improving the quality of service/cost of your existing funding. 

In the current market, there has been a continued emergence of funders looking to support SME’s – this is positive news but does mean that the lending landscape is ever more complicated for businesses to navigate.  A High Street Bank is often the first port of call for clients looking for cash to lend, but what are the alternatives? The answer depends what you want to do with the cash. We think there are three main types of funders to consider:

• Asset based lenders
• Second tier unsecured lenders
• Private equity/Venture capital funders

How to they differ from High Street Banks?

Asset Based Lenders

Asset based lenders focus on lending against the assets of the business. This may take the form of factoring/invoice discounting, stock finance or funding based on plant and machinery. Depending on the risk appetite of the particular lender, they may also offer some element of traditional loan in addition. As the funding they provide is generally fully secured they often have an appetite to lend in situations that a mainstream bank may consider too risky – for example a purchase of a business out of administration.

Second Tier Unsecured Lenders

Second tier unsecured lenders will essentially offer similar loans to that of a mainstream bank, but they tend to have a greater risk appetite. This allows them to lend to businesses in situations that mainstream banks simply won’t and/or provide a greater level of debt than a mainstream bank would in the same situation. They provide loans to businesses without the requirement to have it supported by security on assets. Given this is risky for the lenders, any loan will usually carry a higher interest rate and shorter payment terms. A business will need to demonstrate a strong track record of cash generation to be eligible.

Private Equity / Venture Capital Funders

Private Equity/Venture capital funders tend to fund businesses that are looking to grow, and grow rapidly. Rather than gearing up the business with debt that requires repayment in the short term, these types of funders will provide cash in exchange for some carefully structured (generally longer term) debt and most importantly a share in the ownership of the business. They are effectively looking to grow the business with you and sell for a much higher value later down the line.

Shorts can help you to find the right funder for your business needs. As an award-winning Corporate Finance team, we are focussed on providing a high quality, personable service to our clients.  We will be candid and open with you regarding your options and will objectively determine and agree your funding requirements.

If you would like to find out more about the products and services we offer, please drop us a line today and see how we can help make your ambitions a reality.

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