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Finance Alternatives for your Small Business

Owners require access to finance to grow and develop their businesses. One way of acquiring large sums of money is through traditional financial sources, such as bank loans and private equity. 

But without a strong credit history and proof of market demand, newer companies will struggle to fund their businesses through traditional means. A Global Entrepreneurship Monitor (GEM) study found that 95% of business plans received by venture capitalists and accredited investors were rejected

The rise of alternative financing – like crowdfunding and peer-to-peer lending – has democratised the process of financing by bypassing red tape that blocks start-ups and small companies from accessing capital that will help grow their business. 

Alternative sources of finance can help grow your business
Raising finance for your business can help you get the ball rolling!

Here are some forms of financing for small businesses:


While crowd-sourced funding came about in 1997, it was only in 2009 when crowdfunding became a major funding source for entrepreneurs seeking to share their ideas and gain exposure. 

This type of alternative financing allows hundreds and thousands of online investors from all over the world to make small contributions towards a goal – rather than a single large investment from one investor. 

There are two main types of crowdfunding: 

  • Reward crowdfunding: businesses seek finance via donations, offering investors the final product/service as a non-monetary reward. Global platforms in reward crowdfunding include Kickstarter, Indiegogo and Patreon. 
  • Equity crowdfunding: companies pitch to potential investors about raising funds to develop their business, offering a percentage of their shares in return – a well-known example is BrewDog, raising several millions of pounds in their Equity for Punks share issues. Crowdcube and Seedrs are popular for equity crowdfunding in the UK. 

With an active community of investors looking to fund money into new projects, crowdfunding is a viable way for owners to finance certain parts of their business. 

But there are some stipulations when using crowdfunding platforms to finance your business. A percentage of raised funds will inevitably go to the platform itself. With some sites, funding must be set to a limited time, while other sites only allow you to receive funds once a goal has been reached. 

Funders will also expect a quick return on investment (ROI) after funding has completed, which can put pressure on your company if you fail to deliver as promised.

Peer-to-peer lending

A type of debt-based crowdfunding, peer-to-peer (P2P) lending allows individuals to loan money to others and earn interest on repayment through an agreed interest rate. For P2P lending, Funding Circle is the biggest player in the UK. 

Cutting out the middle man (i.e. traditional financial institutions), businesses with predictable earnings and good credit history can explain to lenders how much money they want to borrow and what it will be used for. 

After undertaking due diligence and assigning a certain level of risk to the business venture, potential investors will state how much they’re willing to lend and at what rate they want their money back. 

Not only will investors receive dividends on profit shares, but the long-term prospect is that they can sell their shares for a profit later down the line if the business continues to grow. 

While that lack of regulations makes this type of funding unstable and risky, the quick processing of loan applications and no deposit allows businesses to focus on growth and development without having to pay high IR. 

Retail bonds

Another popular way for businesses to raise funds is by launching bonds that specifically target retail investors. 

There are two types of retail bonds

  • Listed retail bonds are traded on the London Stock Exchange’s Order Book for Retail Bonds (ORB) and pay cash interest to bondholders. 
  • Passion brand (or mini) retail bonds are unlisted and not tradeable on ORB, with bondholders being paid through a range of offers such as store vouchers and customer discounts for products. 

Once private investors have lent money to the borrower, they receive a fixed annual return, typically paid once or twice a year for a set number of years. 

There are multiple ways for businesses to go about marketing their retail bonds. Some companies advertise their retail bonds on crowdfunding platforms to benefit from the marketing reach these sites have. Other businesses market their bonds themselves via their existing customer databases. 

By targeting existing customers as well as employees, retail bonds allow businesses to increase the company’s profile and increase brand loyalty. 

A company that found success using retail bonds was Hotel Chocolat, raising £3.7m through their ‘Chocolate Bond’, funded by 100,000 members of the Chocolate Tasting Club. Interest was paid monthly in the form of chocolate tasting boxes. 

While subject to certain legal requirements, retail bonds provide flexibility when it comes to the repayment date and whether interest is paid in cash or offers. 

On the other hand, retail bonds have a higher rate of interest than UK high street banks. The higher return reflects the high risk that comes with retails bonds.

Fintech lending

Lowering the barriers to entry when it comes to financing, fintech lenders use data and technology to streamline the lending process, offering fast approvals and funding of loans to businesses who have previously struggled to access credit through traditional sources of finance. 

According to the 2016 Small Business Credit Survey (SBCS) report, 69% of start-up applicants obtained less than the full amount of credit needed to grow. 

Fintech lending has made access to capital possible and faster for many small businesses. Companies can expect to benefit from other financial options including automated accounting and online payments. 

And through innovation, fintech companies such as PayPal and Kabbage can provide personalised products that are tailored to each business wanting to take out a loan. 

Even though this process is easier than traditional banking, businesses will still have to deal with higher IR that reflect the higher risk associated with fintech lending.

Our final statement

Whether you urgently need funding, unsure about how much funding you need, or have been turned down for loans in the past due to poor credit, these alternative financing options will save you time and rejection when it comes to funding. 

As alternative funding platforms tend to facilitate arrangements that are mutually beneficial for both borrowers and lenders, not only do companies get easier access to finance but investors and lenders can diversify their portfolios by supporting a range of small businesses. 

Just make sure you have a rigid business plan that can ensure you acquire the necessary funds that can help develop your business through alternative financing. 

Our team at Count are here to help you figure out the best way to finance your business – just reach out to us through our website to find out more! 

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