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Although the big banks are often the most cost-effective option for finance, offering the lowest interest rates, it’s not always a viable option for startups. Banks often see startups as too risky, having no tangible assets with modest or uncertain revenue. Startups would be wise to consider non-bank lending as an option for financing their business. Invoice finance or short term loans, unsecured or secured, are three non-bank alternatives worth considering.

Invoice finance relies on borrowing against your unpaid invoices if you sell on terms. Invoice finance, or debtor finance, allows startups to borrow against their future cash flow, giving them access to cash quickly rather than waiting for payment terms that can be up to 90 days. Furthermore, your clients often require selling on terms and is used as a means to grow your sales.

Startups with a longer trading history may also qualify for unsecured business loans or a cash flow loan from an online alternative lender. These loans are often between 3 and 12 months, and the process itself can take as little as 24 hours to have your loan approved and funds deposited. Unsecured loans offer risk-based pricing, with lenders evaluating the overall health and growth potential of your business, and offering flexible repayment schedules.

Other debt options may also be a viable option for startups, either borrowing against R&D grants, IP or other assets. These loans can be offered for a longer period.

The advantage of debt finance is that it is non-dilutive to the shareholders. However, as debt ranks higher than equity in the firm’s capital structure, it is imperative that any debt obligation that a company takes on has a predictable future cash flow to cover the repayments.

Non-bank lending is an option that makes sense for startups that don’t meet the bank’s criteria and also want to hold on to their equity value without further dilution. Do your homework on interest rates, establishment fees, early repayment fees and other hidden costs and find a non-bank lender that will support your startup in the long-term.


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