Looking for bank-beating rates, a streamlined application process and better approval systems? Explore increased flexibility and better customer service with non-bank lenders.
Non-bank lenders often offer businesses more flexibility as they’re newer, more agile, and not restricted by a banking licence. They’ve also had to compete by offering advantages, such as smart tech for faster loan approvals, appealing to customers unhappy with big banks. As a result, non-bank loans are becoming increasingly popular with UK SMEs.
When seeking financing, don’t limit yourself to traditional high-street banks. Explore all available options, especially those offering better rates, fees, loan terms, and customer service.
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At a glance: Three things to know about getting a business loan from an alternative lender
The number of alternative business lenders has grown considerably in recent years, giving you more choice than ever.
These loans are generally unsecured and available for amounts up to around £300,000. Terms differ but are usually between six months and five years.
To apply, you’ll need to meet minimum requirements (set by the lender) typically covering your annual turnover and how long you’ve been trading.
What other types of non-bank business finance are available?
As well as straightforward unsecured business loans, non-bank business lenders offer the following finance options:
Line of credit. This is a revolving loan (similar to a credit card or overdraft) that allows you to withdraw any amount you need, whenever you need it, subject to an agreed credit limit. Monthly repayments are highly flexible, subject to an agreed minimum, and you can top-up as and when you need to.
Short term loan. This is an upfront lump-sum loan with a fixed repayment schedule ranging from 3-12 months.
Invoice finance. Invoice financing allows you to unlock the value in outstanding invoices. You sell the invoice to the lender for a percentage of its value, giving you immediate access to funds rather than having to wait for your creditors to pay you. This could be handy if your business would benefit from a more steady and predictable income.
Asset finance. This is a secured loan that allows you to spread the cost of new equipment or to unlock the value in existing equipment. If you fall behind on repayments, the lender can repossess the assets and sell them. Business owners typically use asset finance to get the latest tech or new business vehicles. This type of finance may appeal either to businesses that are asset rich but don’t have the spare cash for a particular project or to businesses that have a strong, dependable income but not the spare cash to access the latest equipment.
Merchant cash advance. This is an upfront lump-sum in return for a fixed fee (rather than ongoing interest). You’ll repay a percentage of all your sales until you have paid off the debt and the fee, which makes this an appealing option for businesses with hard-to-predict incomes.
How to find the best non-bank business loan
There is no one “best” business loan on the market, as it will depend on your particular situation. However, keep the following in mind when weighing up lenders:
Consider the types of finance available. What would suit your particular company best? A straightforward, fixed-term loan or one of the alternatives listed above?
What’s the overall cost? Do you know the overall cost upfront? Is the interest rate fixed or variable? Are there fees to pay? Be aware of one-off fees such as application fees, exit fees and termination fees. Other charges include ongoing fees such as service and advance fees.
What’s the monthly cost? Only apply for a loan if you’re confident it’s affordable. As a general rule, longer loans cost more overall, but have lower monthly payments.
Is the company eligible? Never apply for a loan without checking the eligibility criteria. These are typically based on factors like your turnover and how long you’ve been in business.
Is the loan flexible enough to cope with changes in your company’s circumstances? If there’s a good chance that your business’s situation could change significantly during the term of the loan, then do you have the flexibility you need? Can you repay early? Will doing so save you money? Can you top-up your loan?
Have you weighed up the pros and cons of borrowing from non-bank lenders?
Competitive rates. Non-bank lenders tend not to have the overheads of big high-street banks and can be competitive on rates.
Customer service. Let’s face it: the big banks don’t have the best rep when it comes to looking after their customers. Non-bank lenders may offer better service, better communication and quicker decision-making.
Alternative decision processes. Many alternative lenders will look at factors other than just your personal and business credit scores when deciding whether to approve a loan.
Inconsistent rates. There’s a huge, huge range of rates out there – from those that are so good they must barely make a profit to others that are quite simply a rip-off. That makes comparing a must.
Vulnerability. Without the backup of a big bank, there’s a chance that a startup loan company might not be around in a couple of years’ time.
What pitfalls do you need to avoid?
You should always be cautious of debt. Avoid borrowing too much money and learn exactly how much debt your business can handle. Also, try not to apply for amounts that exceed your business needs.
Understand all the fees involved, including one-off and ongoing fees, and be aware of interest rates that exceed the market rates as well as your ability to repay.
You should also be cautious of applying too many times for credit products. Applying for lots of loans will negatively affect your credit history and your ability to be accepted for future loans. Take your time weighing up your options and apply only when you meet all eligibility requirements set out by your lenders.
Frequently asked questions
Peer-to-peer (P2P) platforms bring together investors with SMEs looking for finance. By cutting out the overheads normally associated with high-street banks, these companies are often able to offer more competitive rates. Since they’re all about the tech, P2P services typically offer a highly streamlined user experience and may look at more than just credit profiles when making loan decisions. On the other hand, P2P loans are dependent on having enough willing investors at the right time. Since they’re so dependent on these investors, they may be more risk-averse than more specialised business lenders.
Ideal for sporadic, very short term borrowing, business credit cards work in a similar way to personal cards, but with the option to add more cardholders and potentially track and manage spending from a centralised platform. You’ll only pay interest on the money you spend, and if you always pay off your balance in full at the end of the month, you usually won’t be charged any interest at all. Plus you could even earn a few rewards along the way.
We show offers we can track - that's not every product on the market...yet. Unless we've said otherwise, products are in no particular order. The terms "best", "top", "cheap" (and variations of these) aren't ratings, though we always explain what's great about a product when we highlight it. This is subject to our terms of use. When you make major financial decisions, consider getting independent financial advice. Always consider your own circumstances when you compare products so you get what's right for you. Most of the data in Finder's comparison tables has the source: Moneyfacts Group PLC. In other cases, Finder has sourced data directly from providers.
Chris Lilly is Head of publishing at finder.com. He's a specialist in personal finance, from day-to-day banking to investing to borrowing, and is passionate about helping UK consumers make informed decisions about their money. In his spare time Chris likes forcing his kids to exercise more. See full bio
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