People in business often approach banks for loans, but they are not the only option. Other lenders may be more competitive or more suitable for your business, such as:
Before approaching a non-bank investor, you should make sure your business is ‘investment ready’ by:
You should read all agreements carefully before you borrow from a non-bank lender and find out if any assets will be required as security. Most non-bank lenders are reputable, but they are subject to fewer regulations than banks.
You should avoid unauthorised lenders, also know as loan sharks. An unauthorised lender may give you quick access to credit, possibly without needing a business plan or security, but there may be drawbacks including unfavourable interest rates and loan terms.
You may be dealing with a loan shark if:
There are a number of different types of non-bank finance sources.
Commercial loan providers
Commercial loan providers provide financial services like loans and credit facilities, but don't have a banker's licence. They can however have less restrictive lending criteria and may be a useful source of funding. You can check the Financial Services Register to ensure the provider is registered.
The HM Treasury backed Business Finance Partnership scheme aims to increase and diversify sources of capital available to business.
Peer-to-peer lenders let you borrow money directly from savers - cutting banks out of the equation. Terms can be more favourable - eg no early repayment fees - and you may find you are accepted even though banks have turned you down. Also, some services are free to apply for and doing so won't affect your credit rating - even if your application is rejected.
Some peer-to-peer lenders include: