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What to do if you can’t secure a business loan

A quick look at four alternative cashflow solutions for when the bank says “no”

There are various reasons why you may not be able to get a loan. It may be because you have a poor credit rating, you may not have enough assets to act as collateral to secure the loan or maybe you were told “no” because of another banking criterion.

High rejection rate for small business bank loans

A recent survey by market research agency BDRC Continental shows one in two small businesses were rejected for a bank loan during the first two quarters of 2012, and you may well be one of them. Banks are becoming increasingly wary of lending to higher risk businesses as the high rejection figure shows. For those surveyed that did secure a loan, only a third actually got the loan they wanted. Of the 20,000 small businesses surveyed, 41% used their personal money to secure assets and keep cashflow positive, something you should avoid doing. One in four said they had no choice but to use their personal finances – something which can have serious implications if things do go wrong.

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What to do if you are unable to secure a loan

There are various options for financing your business beyond going to the bank. Here are a few alternatives to small business loans: Invoice finance: Probably the more useful form of finance, you effectively use your customers promises to pay (the invoice) as collateral to secure up to 95% of the invoice value. The factoring company will offer a sales ledger control service, freeing up valuable time which can be used elsewhere. Alternatively, invoice discounting, suitable to those earning over £250,000 a year, leaves the business as the face for credit control. Business angels investment: Either an individual investor or, sometimes, a syndicate lends a cash sum for a percentage of a business. These characters often come with high expectations and a list of demands which need to be met in order for the contract to be fulfilled. Peer-to-peer lending: This is an interesting service which aims to avoid the use of a bank. Essentially, the business will choose how much they want to borrow and instead of a bank loaning money, other individuals offer part (or possibly all) of the amount requested by the business. This could be five individuals offering £1,000 each or 15 individuals offering £50 each. There will be an interest rate on the money borrowed which goes to the individual who lent the capital. Two major organisers of peer-to-peer are Zopa and Funding Circle. Business cash advance: This service is for those who can collect payment through an electronic point of sale (EPOS). The Cash Advance Company gives the business the value of their credit payments, usually within 10 to 11 days. This is a useful tool to gain money before the end of month, but at a loss of 10-20% of the value as a charge for the cash advance, it will require a strong cost vs. benefit analysis. You may be one of the 61% of small businesses who have little or no confidence the banks will give you a loan meaning you will have to look elsewhere for funding. By opting for invoice finance, business angel investment or other forms of finance, you can once again be confident your business cashflow will be a healthy one. These methods of finance give you the chance to prove the untrusting banks wrong, without having to dig deep in your own pocket. Graham Tripp is a business copywriter for invoice finance specialist Touch Financial and Factoring.org.uk.

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