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3 Alternative Ways to Finance Your Small Business

By: Keith Tully


As a small business, finding access to finance when you need it most can be very challenging and might seem impossible but there are alternatives to taking out bank loans or using your own personal funds to overcome a cash flow crisis.

Here are 3 alternative ways for small businesses to generate funds:

1 – Asset refinancing

If your small business is facing significant cash flow or debt management challenges but you have capital tied up in a small number of expensive assets then refinancing them could be your best option. The process essentially involves selling your assets, whether they are items of equipment, a fleet of vehicles or anything else with significant value, and then leasing them back at an agreed rate.

It is not necessarily an ideal scenario for a company to lose ownership of important equipment or other assets but as a means of raising funds quickly, asset refinancing has some clear advantages. Plus, the fact that assets being refinanced can still be used after they’ve been sold means disruption to operations can be kept to a minimum.

2 – Invoice factoring and discounting

A growing number of small businesses are realizing that they can use their outstanding invoices as a means of generating funds and delivering a cash injection at important times. The process involves selling your future incomes associated with specific invoices at a pre-agreed price.

Invoice factoring also involves selling on the responsibility of securing payments relating to the invoice to a third-party, which helps add to its appeal from the perspective of many small business directors. Invoice discounting differs from factoring only in that the company that issued the invoice remains responsible for pursuing their clients and making sure the relevant invoices are paid in full.

In both cases, with invoice factoring and discounting, there is the prospect of receiving funds up front rather than at some future date, which can give small businesses a valuable chance to improve their cash flow circumstances. Neither process relies on personal guarantees on the part of individual company directors, which is often not the case with loans or other more traditional routes to finance.

3 – Crowdfunding

Crowdfunding has emerged as a major talking point in the context of small business finance in recent years and there is a growing list of success stories that show the process works extremely well for some companies.

The idea underpinning crowdfunding is that a company can appeal to large audiences online and encourage them invest small amounts in an idea they are interested in.

Like invoice factoring and discounting and asset refinancing, crowdfunding has become an increasingly popular finance option for small businesses who have seen traditional routes to funding blocked off almost entirely in recent years. Crowdfunding presents plenty of potential as a means of raising cash but the process does rely in part on having ideas that capture an audiences’ imagination, which isn’t always possible, even for small companies that are growing fast.

Important options

The attitude of banks and traditional lenders towards small businesses in need of funding has been stubbornly skeptical since the onset of the financial crisis in 2008. But there is a growing variety of ways of in which companies can overcome financial difficulties through alternative means such as those outlined above.

And, while traditional lenders remain risk-averse, alternative routes to finance are helping to provide important support to small businesses that need funding in order to survive and to flourish.

Published: July 28, 2014

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Keith Tully

Keith Tully has been working in the field of corporate insolvency for more than a decade, during which time he has helped many company managers accomplish their business goals, He's currently partnering with Real Business Rescue, the UK's most extensive independent network of insolvency practitioners.

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