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Demystifying alternative finance

Sharon Argov, CEO and Co-Founder of Fundbird

The world of alternative finance is now so diverse that there are a broad range of options available to small businesses. However, awareness of finance options outside of traditional banks is still shockingly low. According to GLI Finance, a lack of understanding about funding for small businesses could fuel a £20 billion black hole in the UK economy by 2020.

It’s vital that SMEs get to grips with this goldmine of, potentially business rescuing, funding. Whether you’re struggling with late payments, need some extra capital to fuel growth or need to refinance your debts, there is a funding option for you. Here are just a few types of finance that you could consider, depending on your business needs:

Invoice financing

According to Nesta, invoice financing is the second type of alternative finance that SMEs are most familiar with and it’s fast becoming a popular type of funding. For example, MarketInvoice has now funded over £573 million of invoices – and that’s just one platform offering this kind of financing.

Earlier in the year, we analysed our data to find out what our users were looking to find funding for. Amongst the data, it was revealed that 21% were using the platform to improve cash flow, and with the recent surge in negative headlines highlighting the impact of late payments that’s no surprise. It is in this scenario where invoice financing can be the perfect option for you. It’s essentially a form of short-term borrowing to improve your capital and cash flow, allowing you to draw money against your sales and invoices before your customer has even paid.

If you’re a business that relies on your customers paying invoices, this could be a viable option for you. For example, if you’re selling to larger corporations, this could solve your worries. If your customer hasn’t paid their invoice it can seriously stifle your operations if you’re held back by this. Invoice financing allows you to have access to a flexible finance line without taking on massive loans, meaning that you can ultimately maintain relationships and operations with current customers, but not have to deal with the added pressure of waiting for their payments.


According to The Crowdfunding Centre, £1,700 per hour is being raised via crowdfunding in the UK, and this year we saw the largest equity crowdfunded project, with BrewDog raising £10 million. For those that are unfamiliar with crowdfunding, it does what it says on the tin – it’s the practice of funding a project by raising small amounts of money from a large number of people.

However, it’s important to recognise that there are two types of crowdfunding: equity and reward based. Equity crowdfunding gives investors a stake in your business – be aware that if you want to keep sole ownership of your business, this one isn’t for you. On the other hand, you could raise money via reward-based crowdfunding where, and as the name implies, you offer rewards for investment. For example, if your business is an art gallery, you might think about offering small pieces of your work, or perhaps free entry to exhibitions you hold.


The Nesta report also found that 70% of SME borrowers using P2P business lending have seen their turnover grow since they secured funding, with a further 63% saying that they had recorded a growth in profit. This type of funding is particularly relevant if you as a business are willing to put money away for a longer period of time. This type of funding does also require you to be debt-free. However, on the up-side, P2P lending is regulated, and as of the 6th April 2016 we will see the launch of the Finance ISA which will cover loans arranged via P2P platforms.

In practical terms, this means that people who lend their money to others via a P2P platform will not be taxed on any interest they make. In theory, we should see more people with capital to lend coming to P2P platforms to invest, which is only a good thing for those looking to borrow. The more money that flows through these platforms, the more funding there is available for small businesses. With the success stories of platforms such as Zopa and Iwoca, the industry is well on its way to being thought-of as a stable, viable one.

In short, these options provide just a brief overview of what is available to small businesses in today’s financing age. There are many more financing options available, with many companies now operating in the space. For that reason it’s wise that you use online platforms and intermediaries. By using a completely unbiased service, you can rest assured that you’ll be directed to the most appropriate type of funding, taking the stress and time required out of navigating this complex landscape.

Invoice financing

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