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Short-Term Business Loans – Five New Options

Short-Term Business Loans – Five New Options

Up until recently the only realistic options for a short-term business loan were banks, credit cards, family or friends and loan sharks. Since 2008, banks’ appetite for loaning to businesses has been low. However, new types of business have emerged that offer some alternative funding options:

  • Peer-to-peer lenders such as Funding Circle.
  • Flexible financing like Fleximize who offer repayments in line with revenue
  • New lenders emerging in the Fintech space such as Spotcap.
  • Peer-to-peer invoice discounting, for example MarketInvoice.
  • Lenders using machine learning like Iwoca.

The list goes on – with such a dizzying array of options in the short-term business loan market, it is more complicated than ever before to choose a provider, one which presents great opportunities, but also new risks.

New Opportunities

Alternative lenders allow capital to be deployed from different places. It can be simple for individuals to become lenders through Funding Circle or Zopa which opens up a new pool of capital. For example, Funding Circle has deployed £4bn to date.

New Fintech businesses are using technology to make decisions on loans. Plugging into an applicant’s Xero account or using machine learning to draw sophisticated conclusions allows for faster and better decision-making.

Different repayment models can help businesses access loans that would have been impossible using traditional methods. For example, seasonal businesses can pay loans back when they have an uptick in revenue and reduce payments in quiet periods.

New Risks

Traditional banks may be accused of risk-aversion and deploying traditional methods, but the more cautious they are could mean fewer businesses are surviving on short-term loans.

Many alternative lenders offer quick loan decisions. For many, this is a USP which attracts large numbers of applicants. This may lead to mistakes and businesses accessing loans that would have been unrealistic five or ten years ago, creating problems such as stacking, where they can take advantage of light-touch credit checking to line up several loans that clear on the same day.

For businesses, this can pose a problem in that your clients could be taking advantage of this easier credit and be in a worse financial state than would have been likely a decade ago.

Key Providers

A quick look at some of the options gives an easy view on the sheer range of alternative lenders (we have no affiliate deals with these lenders).

Company Type of loans Features
Funding Circle Peer-to-peer
  • 10-minute application process
  • 24-hour decision       
  • Unsecured loans
  • Up to £500k loan size
  • Dedicated account manager
  • Rates from 1.9% pa
  • No fees on early repayment
  • The requirement for 2+ years accounts
  • Excellent Rating on Trustpilot (4,537 reviews)
  • £80 million invested through government-owned British Business Bank
Fleximize Flexible Financing
  • Named UK’s Best Business Finance Provider at the British Bank Awards 2018
  • Secured and unsecured loans
  • £5k to £500k plus larger loans for established businesses
  • Receive funds in as little as 48 hours
  • Dedicated relationship manager
  • No fees on early repayment
  • Flexible repayment terms including top-ups, holidays and seasonal repayments
  • Requirement 6-month trading history and £10k revenue
  • Excellent rating on Trustpilot (185 reviews)
Spotcap SME Lender
  • Founded in 2014 in Berlin
  • 5-minute application form
  • The decision in one working day
  • Paperless application process
  • Loans up to £250k
  • Sophisticated KYC methods
  • Excellent Rating on Trustpilot (63 reviews)
  • Focus on the ‘business case’ rather than just reviewing historical figures
  • Dedicated account manager
MarketInvoice Invoice Funding
  • A range of invoicing products: selective, confidential and contract
  • Simple application process and same day decisions
  • Businesses need to provide revenue, statutory accounts and three months bank statements
  • Online platform
  • No hidden fees
  • Dedicated account manager
  • Quick verification with your customer
  • Receive up to 90% of the invoice
  • Excellent Rating on Trustpilot (227 reviews)
Iwoca Revolving credit facility using machine learning
  • Borrow up to one month’s revenue as a credit facility
  • Keep funds for 12 months or repay early to reduce interest
  • Transparent pricing
  • Dedicated account managers
  • Decisions based on performance not just your credit score
  • Same day decision and release of funds
  • £500m loaned
  • Excellent rating on Trustpilot (2,905 reviews)
  • Borrow between £1,000 and £200,000
  • Link to online accounts

Traditional Routes

The banks are still featuring in the short-term lending market with overdrafts and loans. Some are becoming more bullish, for example, Barclays has increased the amount they will lend to SMEs.

Banks are working to reduce the administrative burden of applying for loans. Yorkshire Bank has a process that can be completed in ten minutes and generates a decision within 48 hours.

Credit cards can still be a viable tool for short-term lending and are a favourite method of small businesses struggling for financing. There are limitations, however, like punitive charges, low limits and no consumer credit protection. They are popular for businesses to even out cash flow.

Tread Carefully

With the short-term business loan market changing rapidly and more money available for businesses, it’s inevitable that some will use the cash to prop up ailing operations – whether that’s through bad management or fraud. This creates more complexity when deciding on which businesses to offer credit terms to.

Red Flag Alert is an essential tool in this environment. Our business data provides a real-time view of every business in the UK. You can see:

-        Who the key decision-makers are

-        Historical financial performance

-        A financial health rating

Our financial health ratings are the most sophisticated available, taking into account 100+ indicators of financial health and applying a reliable rating that is updated every single day. Businesses across the UK use these ratings to credit check customers and decide on credit terms.

Using Red Flag Alert allows you to see problems early and take action before it’s too late. For a free demo, please get in contact with Richard West on richard.west@redflagalert.com or 0344 412 6699.

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