Sourcing finance to grow your business is a common need, especially if your business has just started. However, SMEs should be wary of opting for business loans available from traditional high-street lenders.
That’s because there’s a lot of red tape that often scuppers a budding company’s plans. If your company has struggled to get the finance it needs, then alternative business funding, like business tax credits, might help.
If you already know about business tax credits, then click below to get your advance within 24 hours now. Otherwise, read on to see how this business loan alternative can help and learn more about five risky options you should avoid.
It may sound vague, but alternate business finance is any kind of funding that doesn’t come from your typical high-street lender. That makes it seem like it’s a problem to go to your bank for a business loan, which of course it’s not: mainstream financing is a viable business loan option for many companies.
However, the high-street typically enforces much stricter lending criteria, which your business may struggle to meet if it’s small or just starting out. Cutting through all the red tape can be a tall order if your business has low working capital, uncertain sales forecasts, or difficulty showing its trading history.
In any case, for your business to reach its potential and attain new heights, you’ll likely need to raise some capital by looking into finance alternatives, such as business tax credits. That way, your business can bypass the irksome and limiting requirements it would otherwise face by using traditional lenders.
As well as claiming business tax credits, there are other finance alternatives that can raise working capital for your business. Unlike business tax credits, however, they can be complicated and risky. This is simply due to the fact that tax credits concern finance that you are entitled to with HMRC. It’s really that straightforward.
These comparatively complicated and risky options include:
1. ASSET FINANCE
Asset funding uses a company’s balance sheet to determine the value of the assets you already own. This is then used as security to borrow money. The trouble is, if your balance sheet is valued low, you might not be able to borrow as much as you might need.
2. EQUITY CROWDFUNDING
Equity crowding is where people, usually a group of investors, agree to fund your business in exchange for a small piece of it. You must be careful, however, that any investment is legitimate and whatever funding you get is worth the percentage of your business that you give away in return. You will also need to be comfortable with parting with some ownership of your business.
3. INVOICE FUNDING
Invoice funding is where a lender agrees to let you borrow a small percentage of the amount outstanding on an unpaid invoice, as it offers some security that there’s money coming your way. This is often done to raise money at short notice as a last resort, as it’s not typically good practice to rely on unpaid invoices for cash flow, and could affect your relationships with your customers.
4. MERCHANT CASH ADVANCES
Merchant cash advances give you a lump sum in exchange for an agreed-upon percentage of all sales you make later. Since this is dependent on future sales, it can end up costly and see you giving away your earnings should they exceed projections and your business does better than anticipated – a bittersweet pill to swallow.
5. PEER-TO-PEER LENDING
Also known as P2P lending, peer-to-peer lending allows businesses to get investment via a P2P platform. However, you must offer a personal guarantee against the funds you borrow, which can include personal assets, meaning they can be at risk if you can’t keep up with the repayments on what you borrow. You’re also likely to pay higher interest rates than you would ordinarily get from a bank.
