Alternative business funding for small businesses

For the third year in a row, challenger banks account for a higher share of gross lending to small businesses than the ‘big five’ banks

Bank lending to small businesses fell by nine per cent year-on-year to £59.2 billion in 2023, according to a report from the British Business Bank, reflecting a year of high borrowing costs and economic uncertainty.

The state-owned development bank said this funding gap is now being sufficiently filled by alternative lenders and private debt fund providers, with products such as asset finance growing by 7 per cent in 2023 to £23.5 billion.

For the third year in a row, challenger banks account for a higher share of gross lending to small businesses than the ‘big five’ banks.

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With a helpful boost from your bank by no means a given, what are the alternative business funding options to consider for your small business? Where can you turn to for business funding if you need an alternative?

Alternative business funding options

Invoice financing

For businesses that regularly sell to other businesses on credit terms, invoice financing could be a helpful avenue to help ease cashflow. With this alternative funding method, a lender pays you quickly – most of the time within 24 hours – for your unpaid invoices and takes a cut when the payment finally does land.

This can help accelerate business growth. However you’re banking (literally) on those clients to pay up eventually.

It is also worth noting this option is only available to B2B services, so your customers have to be other businesses and not the public.

There are two types of invoice finance. Invoice factoring, where the finance provider provides up to 90 per cent of the outstanding invoice and chases up payment from your customers directly, and invoice discounting, whereby the provider still provides a percentage of the invoice but the customer pays the business as normal.

>See also: The benefits of invoice finance

Invoice finance providers

ProviderAdvance rateRequirementsOfferingsService fee
Lloyds Up to 90 per cent, typically within 24 hoursMust have a projected annual turnover of £50,000 and over and sell to other businesses on credit termsUK-based invoice finance team who can tailor a solution to match your trading patterns and business goals. Access to an intuitive online system, so you can easily manage your invoice finance facilityRequest quote
NovunaUp to 90 per cent within 24 hoursAvailable to SMEs with a turnover of £500,000 and aboveNo hidden fees Request quote
Market FinanceUp to 90 per cent within 24 hoursMinimum annual turnover of £100,000 or annualised income from current year’s trading. Limited companies and LLPs only. Easy to use digital interface and real-time customer support. No hidden fees0.2 – 3.5 per cent
AldermoreTypically up to 90 per cent within 24 hoursAnnual turnover typically above £250,000  N/ARequest quote
Close Brothers Up to 90 per cent Minimum annual turnover of £500,000N/ARequest quote (charged as a percentage of gross turnover)
HSBCUp to 90 per cent the next working dayA projected business turnover over £500,000 (including start-ups)Ability to add credit protection to guard against late payment or bad debtsRequest quote
Metro BankUp to 90 per cent within 24 hoursAbility to end your contract with no penalty fee with just 28 days’ noticeRequest quote
Skipton Up to 90 per cent within 24 hours Invoice discounting deals for SMEs with turnovers as small as £100,000 Free credit reports on your clientsRequest quote

Alternative loan and debt providers

For small businesses, business loans can be a useful boost to buy stock, equipment or assets. The monthly repayment period can span from between one to 10 years and a fixed rate can be rubber-stamped before the loan is taken out.

There are two types of business loan.

>See also: Fast business funding and loans

Secured business loans require you to put up collateral as security, meaning the lender will take over the assets if you’re unable to repay. That could mean your house or your car. The advantage of this route is interest rates are low.

Unsecured loans are easier to obtain, and don’t require the risk of losing any assets but you can expect to pay more in interest.

With banks being increasingly cautious with their loans, alternative loan providers have seen a surge in popularity, with most giving approval within 24 hours.

>See also: Best small business loans in the UK

Loan and debt providers

Provider Funding Approval turnaround RatesRepayment periodRequirements
Funding Circle£10,000 to £500,000As little as five hoursFrom 3.9 per cent per year2 to 6 yearsMust have been trading for at least two years. £16,700 minimum turnover per year
Capify£5,000 to £500,000Approval in under 60 secondsFlexible – request quote3 to 18 months Monthly turnover of £10,000 and over and must be a limited company trading for at least 12 months
Iwoca£1,000 to £500,00024 hoursFlexible0 to 6 monthsN/A
Fleximize£5,000 to £500,00024 hoursRates of 0.9 per cent to 2.9 per cent (from 10.8 per cent per annum)12 to 48 monthsMust have been trading for at least 12 months
Cubefunder£5,000 to £100,000Within 48 hours Flexible3 to 12 months Minimum turnover of £50,000 per year. Must be a limited company in England and Wales that has been trading for at least three months

Merchant cash advance

If your business takes card payments with a card terminal, it is possible to get that cash quicker using merchant cash advance.

Unlike a traditional bank loan, there are no interest rates or fixed monthly payments. Instead, you pay the provider a percentage of future card revenue. If your business takes in less cash one month, this is reflected in the repayment and you pay less. If the business has an above-average month, be prepared to fork out a bit more.   

This option is a fast way of landing funding. The time it takes between a customer buying a product and that money becoming available in your bank on average in the UK is three business days with a payment processor. By using merchant cash advance, that cash could be available within 24 hours.

>See also: Is your business a good candidate for merchant cash advances?

Merchant cash advance providers

ProviderFunding RequirementsRepayment period Approval turnaround
365 Business Finance£10,000 to £300,000 Monthly card sales of £10,000 and overTypically six to 10 monthsWithin 24 hours
Newable Finance £10,000 to £1m Must have been trading for six months or more and receive a monthly card sales of £5,000FlexibleWithin 48 hours
Capify £5,000 to £500,000 and over Card sales of £5,000 per month. Majority of payments must be through a card terminalFlexibleN/A
Merchant Loan Advance £3,000 to £300,000Must be trading for approximately three months and turning over more than £2,500 in card sales a monthFlexibleWithin 24 hours
SME Loans £5,000 to £500,000 The business must have been trading for at least six months.FlexibleWithin 24 hours
Monthly average card sales must total a minimum of £5,000
Nucleus From £3,000 up to £2mMust have been trading for a minimum of four monthsFlexibleTypically within 24 hours

Peer-to-peer lending

Peer to peer lending, commonly known as P2P lending, allows borrowers to be matched with individual lenders for quick and flexible loans at competitive rates via a P2P platform. 

Once the borrower discloses the amount they’re looking to borrow and desired repayment period, the platform will do the background work, such as checking credit scores, before matching a borrower with a lender.

An advantage of going down the P2P route is a decision on whether you can be granted funding can be made almost instantly, with the loan becoming available in a matter of days.

See also: Peer to peer lending: A small business guide

Peer to peer lending providers

Provider Loan range Interest rate Approval turnaroundCommitment term
Funding Circle £10,000 to £500,000From 3.9 per cent As little as five hours. Funds within 24 hours From 2 to 6 years
Assetz Capital Up to £2.5m (SME secured loan) 5.75 per centWithin 24 hoursUp to five years
Crowd2Fund£25,000 to £1m6 to 15 per centN/AFrom 1 to 5 years
Funding Knight £250,000 to £1m Typically between 8.75 per cent and 12 per cent Within 24 hoursFrom 6 months to 5 years

Further reading

Raising start-up capital – who to turn to?Being a founder can be a lonely business, especially when raising money for your start-up. Don’t worry, help is at hand. These advisors will either invest, help you crowdfund or put you in the best possible place for seed funding

Small business startup fundingStartup funding for any small business can be a minefield. Here’s a guide to the options available to get you through those early days

Small business finance – the complete guideCash flow is one of the biggest headaches for small business owners. Bank loan applications can be cumbersome. Yet there is a nimbler generation of lenders who can get money into your bank account fast

Looking for finance? is working in partnership with trusted lenders to find the best business funding deals. Find out more here.

Dom Walbanke

Dom Walbanke

Dom Walbanke is a feature writer for Growth Business and Small Business, focused on matters concerning start-ups and scale-ups. He has also been published in the Independent, FourFourTwo magazine and various...