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Small UK Businesses Looking Beyond Banks For Financing

by Jim ONeil on November 1, 2011

in business loans

Though the small business may be the economic lifeblood, banks do not seem to treat it that way. New businesses are finding it nearly impossible to get loans bank offered. Even existing small businesses are having difficulties. Despite Project Merlin from the government, some say banks are not lending enough, which is strangling small business growth.

When they cannot get approved for loans from a bank, some small businesses in the UK are turning to alternative sources for financing. Retail bonds are proving popular with both investors and small businesses. The business issues bonds to investors, providing a better return on lending than bank savings rates.

Personal asset lending, which requires the business to place assets like art or jewelry as security, is also very attractive.

Many banks and companies offer invoice factoring in additional to traditional loans. The business receives a percentage of an invoice due and pays the full amount to the lender upon invoice settlement. Peer to peer lending has received more notice since the financial crisis.

When businesses are turned away by banks, they look for a group of investors who each provide a portion of the financing needed.

Private equity companies are businesses that invest in people and other businesses that seem viable. Though lending terms may be stringent, it may be easier for a business to secure a loan here than from a bank. Angel investors are a bit more entrepreneurial, seeing the bigger picture rather than focusing on quick profits.

The UK is still receptive to small businesses but companies must be creative when looking for financing. The government is trying to help but the credit environment is still tight so alternate sources offer a life ring for small businesses trying to grow.

What was once considered alternative funding could someday be the primary way that small businesses get financing.

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