5 ways to obtain capital for my SME without the help of a bank

Here, Jonathan Dempster of Balmoral Bridging gives us his 5 tips for alternative financing:

This is not likely to change in the near future with the global economic crisis still giving the worlds markets aftershocks. The government are desperately trying to address the problem as best they can with Vince Cable announcing a new business bank offering SME’s £1 billion of new funding.

However, this uncertainty in the markets have prompted other companies to step in and offer alternatives to traditional bank lending, which may lead to the way people and business borrow forever. Here is a list of five innovative ways that businesses are sourcing finance in 2012.

Business Asset Bridging Loans
Bridging loans are rapidly becoming the real alternative to traditional financing methods. Usually based on business assets and individual or firm can borrow money against them, allowing a quick source of credit for commercial expenditure. With the industry being very competitive, rates are very good and a perfect option for short term expenditures.
Although not for every business need, they are a great option for short term cash flow difficulties or to purchase stock to meet unexpected demand, offering flexible and quick finance.

Debt Factoring has been around for a considerable amount of time, but recently has seen considerable emergence in invoice heavy sectors. They work by passing your invoices to a third party and giving you the money owed up front. This is great for long term invoice contracts and frees up a lot of money that is tied down to your business. There is a lot of competition in the ‘Debt Factoring’ industry, and therefore prices are competitive.
On the other hand, this reduces a firm’s scope for other borrowing as the sold invoices will not be available as a security and also changes to point of contact for your customers, most of which are likely to pay on time and in full.

Crowd Funding
One of the more innovative fund raising methods is crowd funding. Coming into existence due to an ever interconnected world, it allows everyone to become like a dragon in ‘Dragons Den’, and buy a share in a start-up or a new product. There have been many success stories already, one of which has received a lot of PR of late, the Ostrich Pillow!
Overall this is great for small businesses that have an innovative product or service and need some finance to grow or buy stock. For smaller amounts of money, usually it means giving a personalised product away, but for larger amounts you may have to give a share of your business away. It also has a relatively low success rate and often requires marketing the product or business at the same time.

Government Grants
With the government looking to be very ‘business friendly’, there are a huge range of grants and rebates that are available to small and medium sized businesses. A BMMagazine study found that many companies aren’t aware of the amount of research and development funds that are available to them.

An array of firms now exist who specialise in finding grants that you may not be aware of. Enlist their help and they can point you in the right direction. They are especially useful for start-ups, but also large companies may not be aware of certain government initiatives.

Venture Capital
Last but not least is good old fashioned venture capital. It has been around since the late 50’s, but never showed much return until the Silicon Valley powerhouse took off. It is still very difficult to achieve venture capital with often gruelling processes to achieve it. However, if you have a great idea, and you can make other people see that it is great too, there is no reason why investors wouldn’t be prepared to finance in you and your company.

On the flipside, this often means giving away a healthy chunk of your business to someone who may have no other interest except money. You have to be careful that you are covered before going into a partnership with anyone, and especially so when it is someone you don’t know.

If you are in need of capital, gaining it from the bank will be a long and often fruitless process, especially in the current market. Step back and think outside of the box, and you will find thousands of ways in which you can make money to fund your business and find an avenue that works best for you.