Alternative options to finance your small business

There are many options to finance your small business.

Small and medium-sized enterprises (SMEs) are the backbone of the UK economy, accounting for 50% of its total revenue. By 2025, it’s expected to grow by around 20%. But to reach such a level of small business growth, these businesses must have access to adequate alternative finance. 

alternative finance small business

The problem is, securing a business loan from banks doesn’t always work out with small businesses. It’s usually challenging for them to get an appointment and obtain the money they need to compete and grow. Fortunately, now there are options for small businesses with the UK’s rapidly evolving alternative finance sector. 

Read on to find out the alternative methods to finance your small business. 

What is alternative financing?

In the past, banks were the only sources of financing for most entrepreneurs unless they had personal funds. Even if self-financing was possible, it wasn’t always sufficient to support their business needs. They had to get financing through a traditional bank from time to time. 

But since the 2008 credit crunch, it has become much harder for small businesses to get funding from banks. If they could, the interest rate would be extremely high. Instead, banks prefer sure bets that can pay them back regularly and on time. So they lend to large businesses with high profitability and credit scores. 

Due to a lack of access to traditional financing, some companies began to offer new lending options to entrepreneurs. So now, instead of taking out business loans from traditional banks and credit unions, small business owners can secure funding from other lenders, typically online-based private companies. 

5 alternative finance options for small business

Alternative financing can come in various forms. But they are all easier and faster to obtain than those you can take out from banks or credit unions. We’ve highlighted some of the alternative financing options you can use for your small business. 

Online instalment loans

Instalment loans are available online. This type of alternative financing allows you to borrow a lump sum and pay it back in fixed monthly payments. The repayment period may vary for every lender, but it can go two months to five years. Depending on the lender, loan term, and amount, interest rates on instalment loans in the UK are generally lower. 

Compared to traditional banks, online lenders are more flexible with their lending criteria. So, you have better chances of getting approved even if your credit score is low. But be sure to do some research and choose the most reliable financing like the installment loans Birmingham, AL, Glasgow, or Edinburgh. 

Merchant cash advance

A merchant cash advance is another quick source of cash for small businesses. Unlike instalment loans, there are no predetermined terms or monthly repayments. Instead, they depend on the pre-agreed percentage of your future sales. 

That means you won’t incur penalties or more interest if it takes you a little longer to repay the loan. However, this might only be a suitable choice if your business has a high volume of low-value transactions or generally earns £5,000 or more via card payments every month. 

Peer-to-peer loans

Another type of alternative financing that small businesses can use is peer-to-peer loans. It’s pretty much the same as applying for a loan with any other business lender. In this type of loan, a group of investors provides the funds instead of banks. 

You’ll secure the peer-to-peer loan through an online platform. You’ll be matched to an investor who’s willing to lend you money based on your credentials. This option is great for businesses that need quick access to financing but lack an extensive financial track record. 

Equipment financing

Equipment financing is another option that you can obtain through alternative lenders. This type of financing is a good fit if your business needs to acquire or replace some technology, machinery, or vehicle. 

The purchased equipment will serve as collateral, meaning you can lose it if you fail to meet the repayment terms. But once you’re able to pay back the loan in full, your business owns the equipment. Repayment periods of equipment financing are set anywhere from 12 months to 5 years. 


Small businesses can also use crowdfunding platforms to raise large sums of capital in a short period. There are various models of crowdfunding, but the following are the most common ones: 

  • Equity crowdfunding: If you use this option to raise funds, investors will get shares in your business in return for their investment. In the UK, startups can only use crowdfunding if they raise no more than £4 million.
  • Reward-based crowdfunding: Instead of shares, you can also give rewards or incentives to investors. But this type of crowdfunding is only achievable if your business has an in-demand product. 
  • Donation-based crowdfunding: You can also create a crowdfunding campaign without giving shares or rewards to investors. If your business has a great cause, people may invest in supporting its growth without expecting anything in return. 

Accelerate your small business growth

Proper timing and planning are essential ingredients to expand your small business successfully. But with the right financing, you can also increase your business sales and revenue at a much faster pace. Even so, make sure to do enough research before making any significant decision.