Sometimes even a well-managed business runs into trouble or just experiences growing pains, and emotions can run high. Don’t panic. There are more options now for obtaining financing than there were even just five years ago. Study up on the types of funding available so you know where to look should you need it.
Peer-to-Peer Lending
By the final quarter of 2015, this sector of the finance market was dealing in the billions: Crowdfund Insider reports from the Treasury Select Committee that P2P loans totalled £4.4 billion by the final quarter of 2015. This type of platform matches businesses looking for funding with potential investors, often a combination of private and institutional lenders. For the investor, it offers a better return than simply putting money in the bank. For the business seeking funding, P2P offers a much faster and less burdensome process than bank lending.
The UK was a leader in this sector and is now leading in its regulation. Some of the big names you’ll see in this are Zopa, Rebuilding Society, Funding Circle, and RateSetter. The risks in P2P are largely to the investors, not the borrowers, because the loans are often unsecured. For the borrower, you will usually be required to provide a personal guarantee, so you risk your personal assets or being sent to debt collection if you aren’t able to pay.
As stated above, the process will be faster and less burdensome than if you were to seek bank funding, but that does not mean you can waltz in with nothing to show. Your application will be reviewed by sophisticated investors, so be prepared to impress them, if not with your balance sheet, then with a well-prepared case for why you deserve funding.
There have already been some large troubles in this very young market, including the closure of Sweden-based TrustBuddy, but these so far seem to have been the result of mismanagement and not fraud.
Crowdfunding
In a way, P2P is a type of crowdfunding – in that it gets money from multiple sources – and you’ll often see the two lumped together. However, with “true” crowdfunding, the individual investors get something other than interest back on their money, and the money you get isn’t a loan. As the borrower, you will be required to offer either rewards, a la Kickstarter or Indiegogo, or a stake in your company; the latter is what we call equity crowdfunding. Both of these, but particularly equity, are geared more toward startups and new ventures, but you never know – your company might have a story that compels investment, so if you are able to offer products or equity this type of funding would be worth investigating.
Invoice trading
Small businesses are especially vulnerable to late payments, which can be disastrous when a company relies on one particularly large client or customer. Invoice trading allows you to get money against outstanding invoices in an auction; the seller puts up select invoices that are then bid on by prospective buyers. This type of funding is for businesses that sell or provide services to other businesses.
Invoice trading can help enormously if you need a quick improvement to cash flow or funds to grow, but the terms can be short (say, up to 90 days), so you need to continue chasing those payments you’re owed. You will generally have to pay some fees, a percentage of the loan plus VAT. Platform Black and Investly are two of the big players in this market.
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