The non-bank products to consider for your business

Following the banking crisis in 2008, the lending restrictions placed by banks made it very hard for businesses large and small to access finance. Whilst restrictions have certainly eased in recent years, the role of non-bank finance has grown exponentially, with a number of niche products now available to help businesses to accept capital.

Below, we explain some of the most important and popular non-bank finance options that are likely to come from private lenders, institutions, challenger banks and specialist finance companies.

Bridging loans

A bridging loan offers a way to complete on a property within a short timeframe, using the property as security. Often used by property developers and investors who are looking to close a property sale before someone else jumps in, using a bridging loan essentially makes you a cash buyer, so you can complete quickly, sometimes within just 2 to 4 weeks.

Bridging loans or bridging finance is also used to complete purchases bought at an auction, which is actually one of the most common ways to buy a property in the likes of Australia and New Zealand.

Some businesses can also use bridging to release money, if they are using their property, assets or offices as collateral, with some large airlines using their vessels as collateral in recent cases. 

The average loan lasts from 3 to 24 months (source: MT Finance) and in the UK, the industry has grown from an industry value of £1 billion in £2011 to £7 billion in 2021.

Specialist finance

Whilst bridging finance may fall under specialist finance, there are other more specific forms, including development finance, mezzanine and senior debt.

Development finance is similar to bridging, giving you access to cash for property purchases, but the economics of the loan are a little different. Your loan amount is based on the Gross Development Value (GDV) of the property development and the amount you can borrow is typically broken down in the land costs (up to 100%) and construction costs (up to 50%) - (Source: Octagon Capital)

With mezzanine and senior debt, you are also getting access to quick funds, usually for a property purchase or development, but this is usually for when you already have a loan outstanding and just need money to top it up. Hence, you are able to borrow added funds, but you may also need to give away a small percentage of the property or the fund to be eligible.

When using specialist finance, you need to pay very close attention to your costs and numbers, so that you avoid jeopardising your cash flow and needing additional funds.

Your loan will always be secured against a property that you own by first or second charge - and failing to keep up with payments can lead to the repossession of your collateral.

Invoice finance

For many companies who suffer from delayed invoice payments, you can use a non-bank form of finance known as invoice finance or invoice discounting.

Instead of waiting 60, 90 or 120 days for an important invoice to be paid, you can get an advance of up to 80% on invoice sum. This injection of cash can be vital to carry out the job, whether you are a caterer needing to buy food and hire staff, or a fashion designer who needs to buy materials and fabrics to complete her order. 

With low rates of around 5% per month, invoice financing can be extremely effective for small businesses to meet their orders and access important working capital.

You just need to show proof of your invoice to a lender and they will call up your client to validate it.

Merchant cash advances 

Similar to invoice financing, you can receive money upfront on any credit card repayments from your customers, especially if they take 60 or 90 days to clear.

Perfect for retailers and restaurants who are used to getting paid by credit card, a merchant cash advance gives you the money upfront at very affordable rates, helping you to pay your staff, rent, food bills and any other overheads to maintain the functioning of your business.