The process of securing funding for your business—whatever stage you’re at or field you’re in—can be challenging and stressful. But, gaining a clear understanding of what options are available and how quickly you can access them at short notice can prove crucial to business development.

A full awareness of what is possible gives you more flexibility in planning for the future, and generally a greater capacity to react quickly to challenging circumstances.

The good news is that there are more routes to financing available to businesses of all sizes in the U.K. than ever before. There are short and long-term solutions, as well as industry-specific facilities and newly created investment platforms, all now accessible to U.K. companies.

The funding landscape

It’s no secret that access to mainstream credit and lending facilities has dried up significantly since the onset of the financial crisis in 2007. Almost overnight, banks and other mainstream financial service providers became very reluctant to provide credit to even the most robust and viable of businesses, and that position has been broadly maintained ever since.

The effect has been widespread, but one predictable consequence is a groundswell of demand for credit, loans, and cash flow finance solutions amongst the U.K.’s small and medium-sized enterprises (SMEs).

In this guide, we’ll take a look at the traditional business finance channels like banks and mainstream lenders, as well as the various types of alternative financing available to help you find the best funding options for your business.

Traditional channels

Those of you who’ve been in business for more than a decade will probably remember the “good old days” of business finance. Chances are, you would have a personal, long-term relationship with your bank manager, and he or she would know your company, its market, and its challenges.

Many businesses would have either a large overdraft or a loan, which coupled with localized decision-making made the whole process much smoother—albeit slower.

But then the credit crunch and global recession took hold, and 2015 is a markedly different landscape for small businesses in need of finance.

First of all, banks are now much less keen for businesses to have large overdrafts; they have to allocate funds for the entire amount whether or not it is used, which on a large scale has a detrimental effect on their Tier 1 capital.

For loans too, centralized decision-making combined with the banks’ tightened purse-strings has lead to a risk-averse, cookie-cutter approach that simply doesn’t work for many small businesses, especially when their situation is urgent, complex, or challenging.

To that end, this is where the broad category of “alternative finance” comes in.

Business grants

If you are operating a new or small-scale business of any kind, a grant could be a great way to improve your prospects and inject some cash into your operational equation. In the U.K., there are lots of different publicly-funded grants for businesses that could stand to benefit from a financial boost.

Generally, these grants will be funded by either the British government or the European Union, but the distribution mechanisms tend to be very local in their scope. You can find out more about grants available in your region at U.K. Business Grants.

As well as having a local focus, grants available to businesses in the U.K. are sometimes industry-specific. Often, allocation of grant funding has to be linked to local community-orientated activities too, and the businesses geared toward helping people or providing vital services in specific locations are most likely to be selected.

While accessing a grant is potentially a great boost to a business—after all, the money received doesn’t need to be paid back—it can take a long time and a lot of effort to gain the cash in the first place. So for businesses looking to grow quickly or to overcome short-term cash flow problems, grants are perhaps not the best fit.

Crowdfunding and peer-to-peer finance

Crowdfunding and peer-to-peer (P2P) finance are rapidly emerging as the most popular funding options for SMEs in the U.K. In fact, the various websites and service providers that make these processes possible are advancing their own reputations and that of the wider industry with each year that passes.

New players continue to enter the market, but Zopa, Funding Circle, and RateSetter remain three of the foremost P2P service providers in the U.K. at present.

Some platforms specialize in P2P scenarios that allow for investors to acquire equity in a given business, while others are based around the provision of loans by third parties.

In both cases, the idea is that both the lenders/investors and the SME should stand to benefit, because of favorable returns for the former and quick, simple access to finance for the latter.

From the perspective of businesses using any such services, the key is being clear about your proposition and being able to demonstrate a convincing capacity for delivering returns or keeping up with loan repayments.

Short-term loans

In the context of business funding, it is important to have robust long-term plans and to have the finance in place to pursue growth opportunities as effectively as possible. But, for any number of different reasons, business financing could become a matter of real urgency and short-term solutions become the priority.

Here again there are a growing number of solutions becoming available, in part in response to the mainstream financial service providers retreating from this market. Online mechanisms have streamlined the processes involved, making it possible for businesses to apply for and access short-term loans or credit facilities more easily than ever before.

Loans can generally be accessed on the basis of a strong or reasonably strong credit rating, but also on the basis of demonstrable future incomes or ownership of valuable assets. Some of the most popular providers of short-term loan facilities in the U.K. at present are ezbob, iwoca, Boost Capital, and Fleximize.

Venture capital and angel investors

Other ways in which a business might look for financial flexibility is through venture capital support, or “angel” investments. Both these processes involve a third party taking an equity stake in a company in return for financial backing. The concept is the same for both—but generally angel investors operate on a smaller scale at an earlier stage of a business’s life, whereas venture capital can be found when an established business is in a growth stage, and usually involves much larger sums of money.

Often these investments will come along with potentially very important and helpful business support thrown in and they will typically focus on startup businesses deemed to have very considerable growth potential.

For the companies that can persuade venture capitalists or angel investors to back them, the benefits can be significant. The field is fiercely competitive though, and relatively few businesses ever gain the kind of investments they’re after.

For a comprehensive rundown of the venture capital and angel investing options available to startups and SMEs looking to boost their growth prospects in the U.K., check out this post from the Entrepreneurial Handbook.

Finding the right support

With the broadening of financing solutions available to businesses in the U.K., there is plenty of potential for funding needs to be met—whatever the circumstances. However, there is also perhaps a greater scope for confusion or misinformation to cause problems. It is therefore very important to seek out advice from experts on these subjects, and get clear guidance before making big decisions.

One other website that can help business bosses find answers to their financing queries is the government’s business finance support finder.

You can find out more about alternative lenders—and what types of finance could be available in your specific circumstances—via the Funding Options website.

Economic advantage

For obvious reasons, it is in the British government’s interest to see businesses throughout the U.K. survive and thrive, domestically and internationally. Indeed, this is rightly viewed as being essential to the health of the wider economy, and so it’s no surprise that the government generally wants to see businesses of all different sizes given the financial support they need.

Clearly, however, the government cannot directly support every company in the country. What it can do is offer tax breaks through initiatives such as the Enterprise Investment Scheme.

Plus, the government recently passed a law requiring banks to refer rejected SMEs to alternate finance through online platforms like Funding Options, and the law is expected to be implemented in late 2015.

Doing your homework

The enterprise funding landscape in the UK continues to change rapidly, and that trend is very likely to continue. Many of the emerging services and providers are giving businesses increased flexibility and more reliable access to the finance solutions they really need, in ways that make sense and work quickly. For small business owners today, financial planning is all about doing your homework and finding the right solution for your specific circumstances.

Do you have experience funding your business in the U.K.? Have any tips to share?

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Emily Trant
Emily Trant

Emily is the Chief Operating Officer for Funding Options, which is fancy talk for 'gets stuff done'. Originally from Canada, she has spent the last decade working in small but growing businesses in the UK. She's naturally nosey so loves getting under the skin of any business, particularly those with a focus on data.