By Ian Duffy, CEO of Accelerated Payments
Not since the early 1980s has the UK faced the inflation rates it is currently experiencing, as households are being hit with the most significant blow ever to their incomes. As energy, food, and fuel costs soar to new heights, affording even the basics of life is becoming increasingly untenable for many. Similar situations are unfolding across Europe and the USA as households and businesses struggle to stay financially afloat.
In challenges like these, banks and traditional institutions often fail to provide adequate support to businesses that need it the most. Traditional options like bank loans typically require a credit check, alongside assets such as security (which can be at risk if the business defaults on the loan), and can issue fees if a payment is late or missed, which can be extremely difficult to predict in volatile times.
Instead, these four alternative fintech solutions can support business owners and help them stay in the black. Each of them provides businesses with the funds necessary to scale their operations and build their resilience for the future.
First is invoice financing, which helps businesses get advances on cash they are due from specific unpaid invoices. Providers such as Accelerated Finance can help businesses to borrow what is owed to them by their existing customers.
This allows companies to avoid waiting for the typical payment terms (which can be 90 days in some cases). A business can choose how many and which invoices to use and easily access funds without incurring fees on every invoice or having to finance an ongoing credit line.
No personal guarantees or additional security are needed, as the invoice financing provider can approve your debtor or buyer and credit insure their payments. Cash can quickly be raised and made available as soon as an invoice is issued.
Next, there are crowdfunding platforms such as Crowdcube, which grew in prominence during the COVID-19 pandemic. As social distancing measures and lockdowns suddenly stopped typical operations, businesses of all sizes used these platforms to connect with their core community of customers to stay afloat.
Crowdfunding allows existing and prospective customers to purchase goods, services or packages in advance. With equity crowdfunding platforms like Seedrs, they can contribute a sum in exchange for a minor stake in the business.
It has proven to be a popular route across various industries, from tech firms to fitness companies to food and drink products. Tiny startups that have just been formed, alongside much larger established brands such as Monzo, Grind and Nutmeg, have used this route as a way to grow.
There are also platform providers for eCommerce businesses that operate on platforms such as PayPal or Shopify. Business owners with an online store on a specific platform tend to have easy access to merchant cash advances.
This lump sum can be requested for a set fee, and the business owner provides the platform with a percentage of daily sales until the total amount has been repaid.
Merchant cash advance rates are usually higher. There are also no interest rates; instead, the borrowing fee is adjusted by a factor rate. When you are unsure how sales will perform over the next little while, this can be a great option as there is no set term length or fixed payment amount.
Lastly, there is revenue-based funding. While debt and equity-based funding have been the default options for most newer businesses, they require founders to make personal guarantees or give away equity. On the other hand, revenue-based funding provides companies with capital in exchange for a percentage of their future revenue.
This type of funding tends to be flexible, quick to access, equity-free and unsecured. The critical thing that these lenders will examine is the financial history of a business, which will influence the amount they could lend you.
There is no need for business owners to put together a pitch deck or a lengthy business plan. Instead of mountains of paperwork, these tools link to back-end systems to examine projected revenue and make quick funding decisions.
The year ahead will undoubtedly bring new challenges for businesses and the customers that support them. During times like these, innovation can become imperative for companies determined to survive. As businesses pivot and adapt their typical operations to fit this new landscape, tools that may have once seemed too risky suddenly become a necessary bet.