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How alternative sources of finance are benefiting the economy

Category: Features — Mark on August 1, 2013

Since the recession started in 2008, it has become very difficult for businesses to borrow money. Almost as soon as difficulty struck, banks and other traditional financial institutions became very reluctant to lend. Even established companies found themselves suddenly unable to borrow.

This resulted in many firms simply running out of money and going out of business. Companies that had used loans in the past to take them through seasonal dips in their business were no longer able to do so. Even those that have been able to stay in business have had to rein in their expansion plans simply because they cannot borrow the funds they need to invest in the future. Fortunately, not all lenders have taken the approach of the traditional lending institutions, and slowly but surely, UK firms are finding alternative ways to borrow money.

Money for start-ups

Small firms – which may be relatively new – are just as welcome to borrow from these alternative lenders as larger companies. This is helping start-ups to borrow the funds they need to buy raw materials and increase production. With a bigger stock, they can bid for larger jobs, expand more quickly and contribute more to the economy.

Firms that provide alternative sources of finance will often lend smaller amounts than banks and traditional financial institutions. For smaller businesses, this is important.

Cash for SMEs

Small to medium sized enterprises are also benefiting from the availability of alternative forms of lending. Sometimes a firm just wants to borrow money to get through a tough month, perhaps borrowing just enough to be able to pay its staff. Most traditional lenders simply would not consider this kind of short-term loan. However, alternative lenders, like factoring firms, are more than happy to lend money on a short-term basis.

Cash for national and multinational firms

Even large multinational firms occasionally want to borrow money over the short term. A good example could be retailers which have seasonal products.

By diversifying how they borrow, multinationals have been able to increase flexibility, which has helped them to respond faster to business opportunities. For the economy as a whole, it is important that these firms prosper, as they provide a lot of employment.

A fast decision

When applying for alternative forms of finance, there is usually no need to put together an elaborate business plan. The money provided is usually secured against a company’s invoices, property, machinery or raw materials. This means that alternative lenders can very quickly decide whether to approve a loan.

For firms this is very important, they can quickly make decisions. This agility allows them to take advantage of opportunities and gives them options that they would not otherwise have.

Without access to alternative forms of financing, many firms in the UK may have gone out of business. With access to the quick, easy to understand and relatively inexpensive loans that alternative finance firms provide, these businesses have been able to prosper – helping the economy by encouraging people to spend and by providing employment opportunities.

'Disclaimer: The information contained in these articles is of a general nature and no assurance of accuracy can be given. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or the firm.

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