For retailers, as for small and medium-sized enterprises (SMEs) in any sector, funding from mainstream lenders has become very difficult to acquire in recent years. But whether you’re aiming to cope with financial pressures or pursue growth opportunities, financing is very often essential so it’s important to be aware of what other options might be available.
Here’s a look at 5 alternatives to bank loans that independent retailers in the UK might consider.
1 – Merchant cash advances
With banks broadly reluctant to lend to businesses regardless of their circumstances, new forms of financing have emerged to meet demand. One such funding solution is based on sales made via card terminals used within specific retail outlets. These Merchant Cash Advances rely on sales being generated via payment terminals at a predictable rate but they can provide crucial cash flow options for retailers struggling to cover their outgoings during particularly tough trading periods.
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2 – Short-term loans
There are a growing number of short-term loan providers operating in the UK and the strength of competition means interest rates can be appealing. Those rates aren’t likely to be low but where short-term financial pressures are threatening to do real damage to your business and its prospects then the fees can be well worth paying.
3 – Peer to peer lending
Peer to peer (P2P) lending scenarios are becoming increasingly commonplace and important in the context of business finance in the UK and across Europe. The processes aren’t only for quirky startups or tech innovators and more and more SMEs are using P2P platforms to access loans at reasonable rates. P2P loans are essentially auctioned to investors brought together through particular websites, with the terms and interest rates involved dictated on the basis of your company’s risk profile and how short or long term you intend the loan to be.
4 – Overdraft alternatives
Unfortunately for many SMEs, banks have not only become more reluctant to provide loans in recent years, they have also become less keen to offer overdraft facilities to small businesses as well. Alternatives such as rolling credit facilities have emerged as a result, with directors with good credit histories often able to access services that function in much the same way as traditional bank overdrafts but which are offered on a standalone basis.
5 – Pension-led funding
Pension-led funding is an option generally designed for situations in which a company is looking to acquire property or raise cash for investment purposes. The idea is that a business can make use of a suitably sizable company pension pot in order to secure a loan with a specific acquisition or strategic process in mind. In effect, a company or its directors are able to use pensions to lend to themselves for particular purposes.
Traditional forms of funding aren’t nearly as accessible as they once were in the UK and elsewhere but for retailers and for SMEs more generally it is important to be aware of emerging alternatives. For company bosses in particular, coping with financial pressures can be tough but there are many more funding solutions available than is often assumed and with the right guidance there’s every reason to be optimistic about finding appropriate alternatives to traditional bank loans.
John Baird is a personal finance and insolvency expert from ScotlandDebtSolutions. He specialises in advising people on how to manage their money and deal with their personal debt problems.