42% of small businesses have considered using some form of alternative funding within the past 5 years, a recent study by Amicus Finance Plc suggests. With only 8% of respondents expecting the use of alternative finance to decline in future, many people should expect to look at non-traditional methods of financing their businesses. But what does ‘alternative funding’ mean, and is it really that good for your business?
What is Alternative Funding?
Alternative funding can be defined as any form of funding that doesn’t come from banks or your own resources, which are the two traditional ways of gaining finance. The most common forms of alternative funding include:
- Invoice Finance
- Asset Finance
- Venture Capital
- Angel Investors
There are many other forms, of course, and different ways of accessing these options, such as crowd-based lending, where business owners can be matched up with numerous potential private lenders, who can provide quick cash options for a later return on the amount lent.
Why is Demand Increasing?
Demand has increased for a number of reasons, all of which have to be taken into account together. It’s quite possible that no individual event would have created such a high demand for these sources of funding, but put together the increase demand might even seem inevitable.
Financial Crisis: Obviously, a lot of this goes back to the global financial crisis, that has redefined the way in which businesses do a lot of their finance ever since. The most important facet here is that after the crisis, banks became much less willing to lend, making it much harder to source finance from them. One of the reasons that people are turning to alternative financing is because traditional finance simply isn’t an option, and when it is an option, it’s not a very appealing one. Without the global financial crisis, people might never have had any need to look for alternative sources of finance.
Globalisation: Globalisation is the process by which the world is becoming more connected, and the internet has obviously played a big part in this. As the world becomes more connected, it also becomes easier to find investment in different places. Even if it still comes from within the country, modern technology makes it much easier to be put in touch with people you would ordinarily have no reason to meet, either through services that are designed for the purpose, such as crowdfunding sites; greater networking potential through social media, such as Linkedin; or simply through information and advertising being much further reaching thanks to interconnectivity. Without modern technology, it might simply be impossible to find a source of funding that wasn’t traditional, let alone create new, never before imagined, techniques.
Millennial Ambition: The younger generation, often labelled as ‘millennials’ can also be seen as part of the growing trend towards alternative funding. Millennials are seen as ambitious and individualistic, able to find solutions to every problem and driven to shape life to the way they want it. When traditional routes for funding are blocked to millennials, it’s not surprising that they find other ways of getting what they need, with the drive to make it happen. As many millennials carve their own path in life, they are also likely to start new businesses, which itself drives up the demand for more and alternative forms of funding.
More Options: Of course, part of the reason for the growth is circular in nature. As more options are created, thanks to the above reasons, more people realise that alternative funding is a viable option. As alternative methods of finance become more popular and more viable, more people begin to use them and so the cycle continues. While other factors may have caused this to start, the success of alternative funding is itself a reason for its increasing demand.
How Could You Benefit?
The benefits of alternative finance are as numerous as the options. Individually, each option comes with its own benefits, and so really the range of options which can be chosen to suit you is the real advantage to alternative funding.
Availability is another great benefit. Whereas before, you either had to get a business loan approved or rely on your own finances, alternative forms of funding mean that you have a much greater likelihood of being able to find the funding you need.
A common form of funding for recruitment agencies is invoice finance, which allows you to gain greater control over your expenses and profits. With invoice finance, you either borrow against the amount due, or sell the invoices on, which gives you instant access to the money you otherwise would have been waiting for payment on.
TBOS are well known and trusted by many invoice finance providers. If you get in touch with us, we may be able to secure you a much better deal on invoice financing than you would find by yourself. For a better deal on invoice finance, and to review your options for alternative funding, get in touch with us today on 0845 8811 112.