High Street Bank Or Online Small Business Loan?Published on 22nd May 2017 2017-05-22T20:39:17+00:00 - Last update on 7th January 2020 2020-01-07T16:04:48+00:00
No matter what type of business you run or how far developed it may be, access to business finance has always been an essential ingredient for even further success. Without it we wouldn’t be able to complete key business projects, causing our growth rates to slow and reducing our ability to compete. However one of the main obstacles in the way of SME businesses has consistently been a lack of awareness regarding alternative finance. When seeking finance many business owners turn to their traditional high street bank for aid. But is it really your best option?
Banks might not lend the sums needed
Ever since the 2008 Banking crisis, many UK banks have been giving SMEs the cold shoulder and pointing them straight back out the door in favour of big business. Faced with fines and increased regulations, banks no longer seem to take an interest in SME businesses, even those that once showed great promise. Yet, even if by some chance you do garner their interest, it can take months before you receive a decision, leaving you high and dry in the meantime. Time that you don’t have. Add to that the risk that you may not always receive the exact sums that your business requires and you’ll no doubt be thinking ‘are the banks really my best option?’
Luckily, there is another way. Responding to the ever-growing gap between SMEs and the world of business finance, the alternative finance industry has since stepped in to fill the void. Alternative Finance is a concept born in the aftermath of the banking crisis and is merely business finance offered by anyone other than your traditional high street bank. Consequently, the array of lenders who are all willing to lend to your business is huge and expanding by the day.
Technology is changing small business finance
In the past few years, there has been a massive impetus towards online banking and business lending. For developing businesses, this is certainly going comes as great news. With more and more financial services going online, business owners now have increased exposure to the opportunities created by the Fintech industry.
By using these fantastic online tools, SMEs are now in a better position than ever before when exploring business finance. Plus, by being online, the application process has largely become much simpler and less time-consuming. In some cases, depending on the finance product, an applicant may get a decision within as little as 1 week or even 48 hours. Plus, thanks to access to finance providers such as Rangewell, SMEs are now able to explore business finance in the knowledge that they’re getting the most suitable product attainable.
Bank paperwork vs online convenience
By going online, business owners can now avoid the stress that comes from having to sift through piles of paperwork for a specific set of documents. Online forms can now be filled in quickly and easily, removing the legwork that comes from having to pop down to your local post office. Plus, thanks to the existence of online cloud services, you can even keep digital copies online, making the application much more streamlined. As soon as an application is sent through, with a click, the recipients can get to work immediately, allowing your business to benefit from Business Loans, Merchant Cash Advances, Invoice Finance solutions and so much more!
Business Loans are an excellent way of acquiring a lump sum or cash injection for your business and can be used in any way you see fit. Loans typically arrive as secured or unsecured and come as either short or long-term solutions that last between 1-3 years or 3-6 years and beyond. Throughout the term, you will be required to make fixed monthly repayments, plus interest. Repayments are calculated using: capital, term length and interest.
- With Unsecured Business Loans, your business could gain a sum in the region of between £5,000 and £250,000. Should your business fall behind in making repayments, lenders can’t seize assets. However, it would affect your credit score making it harder and more expensive to secure finance in the future.
- On the other hand, a Secured Business Loan can grant you access to a larger sum, ranging from £5,000 up to as much as £1,000,000. However, should you fail to keep up with the fixed monthly repayments, the lender can seize assets to recover the remaining amount.
Merchant Cash Advance
With this option, your business could receive a lump sum within 48 hours of applying, based solely on your monthly credit and debit card sales. In order to qualify, your business must support card-based sales and be able to produce, on demand, 3 or more of your latest consecutive sales reports. Plus, what makes this such an appealing finance solution for many business owners is that there’s no need to produce your credit score as this isn’t taken into account. How this finance solution works is by a lender offering to purchase your expected takings for one month, otherwise known as ‘receivables’, at a discount. But what makes this product truly unique is the repayment scheme. Unlike a typical business loan, where you pay a fixed lump sum each month, Merchant Cash Advance takes a percentage of your potential monthly sales. For example, a lender could propose a percentage in the region of 18% for each of your card sales, which can also be described as 18p from every £1 your customers spend. Because of this, the repayment scheme is one of the most flexible on the finance market and means that if your sales go down during one particular month, the amount you have to repay for that month is reduced and vice versa.
Invoice Finance is a popular means of unlocking the money contained within any unpaid invoices in order to support your business. When considering this method of finance for your business, it’s essential for you to understand the two types you can apply for and how they work.
- Factoring: lets you borrow a lump sum equivalent to around 90% of an outstanding invoice’s overall value. With this option you’re the credit controller, ensuring that payment owed by the customer in question is forthcoming. Until you’ve received full payment, or begin taking regular instalments, you won’t be required to begin the fixed monthly repayment process, plus interest. That said, however, lenders may choose to specify a period laying out exactly how long they’re prepared to wait. Should this period expire, the lender will begin the repayment process regardless of whether or not you’ve been paid.
- Discounting: allows you to borrow up to 80% of an outstanding invoice’s total worth. With this option, however, the customer responsible for the invoice will instead pay the sum owed directly to your lender. You also have the option of making yourself the credit control or making use of the lender’s ledger service, if available. Once the lender has received full payment from your customer, you will be required to transfer the remaining 20% into a facility run by the lender. After the deduction of any fees and service costs the remaining sum, or balance, is returned to your account.
Our services are clear and transparent. We support a wide range of SME businesses of every shape and size, for finding every type of finance. Follow us on Twitter and LinkedIn for business tips and tricks, and feel free to call us on 0203 637 2340 if you’d like to chat about what we can do for you.
Share this article
Discover your range of finance. Every type of finance for every type of business.
Our goal is very simple - to help businesses find the right type of finance as quickly, transparently and painlessly as possible.Find Funding