Alternative funding options for SMEs

Publication: Experian
6th May 2020

Alternative funding options for SMEs

In our latest SME Support blog we're going to take a quick look at some of the funding options that are out there to help businesses get through this unprecedented situation. We'll cover CBILS, 'Business Bounce Back' and invoice finance and explore some ways you could work with existing customers and suppliers to help spread the financial load. We won't be looking at more well-known financing options such as secured loans but if you'd like to learn about the wider range of finance available, this useful guide from our friends atFunding Xchangeis well worth a look.

CBILSLet's start with the most Covid19-specific and high profile funding source – CBILS. Announced on the 17th March by the Chancellor, this government backed scheme is being supported by over 40 lenders (with new ones joining on a regular basis) to offer low interest, low fee loans to help businesses survive through the initial Covid19 period.Essentially, a business can approach an existing lender, another lender or use a service like Funding Xchange to access this new scheme. CBILS offer:

an initial 12 month interest free period low (or no) fees (thanks to Government support to the lender) no requirement for security for loans up to £250k repayment terms up to 6 years loans from £1,000 to £5m

Access to the scheme is via the British Business Bank, directly via a lender or on platforms such asFunding Xchange.

An important clarification though – if the normal lending criteria of the lender apply to your business, they will offer you one of their standard products rather than a CBIL. It's therefore really important to have a good understanding of your own finances before applying for help.

Check you're eligible for the scheme

-You can view the British Business Bank's quick eligibility checklisthere

Understand the details of the loan you're asking for

-Information such as the amount you'd like to borrow and what the money is for

Ensure you have supporting documents to hand

-Lenders will often ask for documents to show that you can afford to repay the loan and this may vary from lender to lender.

Check your business credit score for free with access to 'My Business Profile'

-Get full visibility of your business credit profile, before you apply for funding

It's also worth noting that Experian have been working to ensure that CBILS will not negatively impact your business credit score – as with any loan, keeping up with repayments will help protect and improve your score and how other lenders see you.

Business Bounce BackThis latest scheme, announced on the 27thApril looks to support smaller businesses with loans of between £2,000 and £50,000 (essentially up to 25% of their turnover); interest free for 12 months and requires business owners to fill in a 2 page self-assessment form. The idea here is to offer rapid support to fix some of the concerns raised around the timelines for accessing CBILS funding. These loans are also 100% backed by the government.

Like CBILS, a range of lenders will be offering these loans.Invoice FinanceNot a new finance option but one that could be new to you and certainly worth investigating. Essentially, if you have invoices awaiting payment from your customers and can't arrange for them to be paid (or part-paid) directly, lenders in this field can pay you now (subject to a typical fee of between 2% and 5% of the invoice value) to free up that cashflow.A range of lenders offer this funding option and you can also find comparison services available via sites like Funding Xchange.Read our blog on payment performancehere.Working togetherWhilst not a formal source of funding, it's worth considering the fact that your suppliers and customers are likely to be in a similar situation to you, as will many of the businesses in your town or city.Reach out to people to see how you could support one another:

To conclude, we're clearly in a very unique situation right now. Government and financial services providers have reacted to this and there are a range of formal (and less formal) ways that you can help your business, staff, suppliers and customers through this period of uncertainty.

CBILS and Business Bounce Back loans are a unique proposition, and if they're appropriate for your business, they're something you should seriously investigate with your bank or via platforms like Funding Xchange.

Taking out new sources of finance can be concerning so getting your finances in order and understanding the implications to your business ahead of time will help settle any nerves you have. By focusing some time and attention on this, you will give your business every chance of thriving in the future.

This article was published on Experian.co.uk