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5 questions you need to ask yourself before applying for Alternative Finance

Published on 25th July 2018 - Last update on 30th October 2018

One of the leading causes for any business falling into insolvency is a lack of funding. As a business owner, you must be constantly looking at and weighing up what funding opportunities are available. But if you’ve been previously rejected by your local bank, the experience may have left you disheartened and contemplating using your own funds. However, before using such a risky strategy, why not consider how the Alternative Finance industry could help? With the Alternative Finance Industry growing by the day, your business could gain access to a diverse range of lenders and business finance products. So if you’re looking to raise capital for any reason, these are just some of the question you must ask yourself before applying.

Why does my business need Alternative Finance?

Before applying for any form of business finance, you need to be clear about why you need external funding in the first place. You should also appreciate that not every problem in your business can be solved by borrowing capital, such as changes in customer spending behaviours. But if there are any areas in your business that can clearly benefit from this form of support, you need to pin down precisely what they are and what you aim to achieve. You should also create a step-by-step plan for how you intend to implement these funds in order to bring about the desired outcome.

Need to introduce more equipment to your business? Looking to smooth out uneven cash flow or move to a new location? Apply for Alternative Finance or learn more about how your business could benefit.

What can I use Alternative Finance for?

Whilst some Alternative Finance products can only be used for specific purposes, such as releasing equity, borrowing equipment or forwarding the money owed to you in unpaid B2B (Business-to-Business) invoices, other solutions carry little or no usage restriction. This means you can source and apply for an appropriate Alternative Finance solution for any aspect of your business that stands to benefit. So whether you’re looking to smooth uneven cash flow, acquire specialist equipment, borrow vehicles for an agreed period, carry out refurbishments or purchase property, applying for an Alternative Finance agreement could be the answer. Just make sure that you’ve got a plan in place so that you can make the most efficient use of these funds and achieve the desired goal.

How much capital do I need to borrow?

Because of the wide range of business finance solutions available to you, there’s no set limit to how much money you could borrow or have advanced. So, whilst products such as Secured and Unsecured business loans have an upper limit based on how much confidence the lender holds in your business, other products could offer funding based on other factors, such as past income, the value of unpaid B2B invoices or unencumbered assets (equipment, machinery, vehicles or property). So, depending on the type of solution you’ve chosen to apply for, you could gain access to funding for whatever your business needs to succeed.

Do I fully understand how much interest will be applied?

As well as identifying which areas of your business require funding and how much money you need to borrow, you must also consider the matter of interest. Although an Annual Percentage Rate (APR) is the most commonly used method for charging interest, some lenders may decide to use other schemes. Some lenders might charge you interest for each day of the agreement, for example, a lender boasting an interest rate of 0.3% per day may seem like a great deal but you need to convert this into APR. Doing this, that attractive 0.3% per day deal that you were offered turns into a hefty rate of 109.5% APR.

You should also check both your personal and business credit profiles since lenders will usually use this to assess the risks that are involved and decided how much interest they’ll charge. When checking your score, lenders will incorporate into their checks whether you have any CCJs, arrears, Accelerated Payment Notices, unpaid debt (eg. credit card debt) and a reliable history of settling debt on time. If there are any issues this will negatively affect your credit score. Therefore, the weaker your score the more interest you’ll be charged, and vice versa.

Are there any additional costs and fees I need to be made aware of?

As well as interest, there may also be other fees that you need to be aware of. You may be required to pay some of these upfront or throughout the course of the agreement and they can include setup costs, administration, legal costs, service charges, missed payment penalties, redemption penalties, balloon payments and exit fees. So, before agreeing to anything, check all relevant documents provided by the lender in order to gain a clearer understanding of the total cost of finance. If you have any queries, you also have the right to request a face-to-face meeting with the lender in order for them to explain their price schemes in greater detail.

Could your business benefit from applying for Alternative Finance?

Gaining the funds you need isn’t easy, but it is a fundamental part of running a successful business. If you’ve been previously turned down, the ordeal may have knocked your confidence. But if you request an explanation for why you’ve been rejected you can learn from your past mistakes and use what you’ve learned when applying for other forms of business lending. With Alternative Finance becoming ever more prominent within the financial landscape, you can turn rejection into an opportunity, and with the Alternative Finance industry growing, seemingly, by the day, you could source an appropriate solution from a wide range of products and lenders. So with focus and determination, you can succeed.

At Rangewell, we work with over 300 lenders to offer you an overview of more than 23,000 business finance products. Our services are free to use and we’ll also guide through the application process. We’re with you every step of the way. So if you’re looking to raise funds for your business, apply for an Alternative Finance solution today or find out more with Rangewell.

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David Harrison

David Harrison

Content writer