Alternative business loans: What are your options?

Growing your business often requires funding – perhaps you want to tender for a new contract, but you need to know in advance if you can get the funding to fulfil it. You’re considering alternative business loans because: 

• You can’t get the level of funding you need to grow from your business bank, or the interest rates are too high. 
• You want to avoid being locked into a long-term, inflexible loan for several years, which can be hard to adjust as your needs change.
• You don’t want to wait weeks for a decision on a loan application, and you want to know upfront if you need to provide a personal guarantee. 
• It’s hard to find funding providers that cater to businesses in Ireland.

In this article, we’ll look at some alternatives to business loans: revenue based finance, peer-to-peer lending, line of credit facilities, and invoice discounting. We’ll cover:

• Revenue based finance: funding based on your recurring monthly revenue
• Peer-to-peer (P2P) lending: borrowing from other businesses and investors
• Invoice discounting: use existing contracts to fund new ones
• Line of credit: draw down funds when you need them
• How to get started with Financefair
• Why choose Financefair for your business finance?

If you’re ready to start a conversation with us about how we can fund your business, get in touch with us now. 

Revenue based finance: funding based on your recurring monthly revenue

In simple terms, if your capital is tied up in long-term contracts, revenue based financing gives you an advance on these funds.

Revenue based financing works by releasing liquidity from your company’s recurring revenue, both contracted and non-contracted. Contracted revenue is recurring income with a formal agreement in place, such as a management contract for a building, while non-contracted revenue includes income from sources like e-commerce. 

You can use the funding to cover operating expenses, deliver new contracts, or expand your business. If you have capital tied up in future subscriptions – for example, in platforms like Shopify or Stripe – revenue based financing offers the funding you need to continue growing your business.

Your projected cash flow determines your funding level, so the amount you can use is based on your monthly revenue streams. This offers you more flexibility than small business loans from traditional lenders (such as banks), which can be challenging to adjust.

Revenue based financing is well-suited to SMEs that:

• Have reliable recurring revenue
• Don’t have blue-chip debtors
• Have a subscription model or contracted revenue 
• Are in a period of growth
• Have a turnover of €1 million or more
• Don’t want additional debt and don’t want to give away equity

Revenue based financing is great in situations where:

• You want to grow your business, but you need an injection of capital– perhaps to hire skilled personnel for a contract, purchase a large amount of stock, or upgrade premises.
• You’ve secured a contract with lengthy payment terms, such as a government contract. 
• Your business has ongoing contracts, with others about to start and more you’d like to tender for.

If your company doesn’t have tangible assets but does have customers and recurring revenue, revenue based financing could be an excellent option for your business. Revenue based finance works particularly well for subscription-based businesses or SaaS companies.

For an in-depth look at this funding method and eligibility, see our article: Revenue based financing: What it is and how to get started. 

Revenue based financing providers in Ireland

Financefair is the only provider of revenue based financing in Ireland. 

Peer-to-peer (P2P) lending: borrowing from other businesses and investors

With P2P business lending, businesses get loans from investors or other businesses instead of traditional financial institutions like banks. P2P platforms check the creditworthiness of potential borrowers by looking at their financial statements, business plan, and credit scores.

It’s often easier and quicker for borrowing businesses to apply for P2P lending than a traditional bank loan. You can access funds for various reasons, like business opportunities and managing cash flow. 

P2P lending isn’t without its disadvantages. You get a fixed amount of funding, as with a small business loan from your bank. That’s in contrast to other alternative loan options, such as revenue based finance, which gives you access to future recurring revenues in your business each month. This funding can increase as your business grows.

P2P lenders in Ireland 

There are a few options for P2P lenders in Ireland. The best-known provider is Linked Finance, who offer loans ranging from €10,000 to €500,000 with terms of up to 5 years.¹

Invoice discounting: use existing contracts to fund new ones

Invoice discounting – also known as invoice financing – allows you to unlock liquidity in your business by leveraging your customer book. This means you can use the contracts you already have to fund new ones, providing quick access to cash without the extended commitment of a term loan. 

There are two types of invoice discounting: 

• Full book: You finance all of your invoices.
• Selective: You choose which of your invoices to finance.

Depending on the provider you choose, you may then have the choice of:

• Undisclosed or confidential invoice discounting: Your customers are unaware it’s happening. You manage your invoices and the payments from your customers. Some prefer this type of invoice discounting, as it allows you to remain in control of your customer interactions.
• Disclosed or non-confidential invoice discounting: Your customers know you’re using invoice discounting. The funding provider can impose this on a business if they feel the perceived risk is high enough. 

Invoice factoring is a form of disclosed invoice finance in which the provider essentially takes over the borrowing company’s credit control, which is less risky for the provider. 

This is how invoice discounting works:

1. You generate an invoice.
2. Provider sends the pre-agreed advance amount: This is a percentage of the total invoice value (for example, up to 90%).
3. The customer pays the invoice amount into a separate account managed by the invoice discounting provider. If you have a disclosed facility, your customer will be aware of the provider’s involvement, but for undisclosed facilities, they’ll assume they’re paying you.
4. Provider sends the remainder of the invoice minus any fees.

To read more about this type of funding, see our article: Invoice discounting: How to get started. 

Invoice discounting providers in Ireland

The following providers offer invoice discounting in Ireland:

1. Financefair: Choose between selective or full book invoice discounting with an advance of up to 90% of the invoice value. You apply for and manage your facility online, and the funds will be in your account within 24 hours of approval. Financefair’s pricing model is transparent, featuring only three fees (you can find out more about these in the article above). Try our calculator to get an idea of the cost of invoice discounting.
2. AIB: Provides full book invoice discounting, offering an advance of up to 85% of the invoice value. You can manage it online.²
3. Bank of Ireland: Offers full book invoice discounting with an advance of up to 85% of the invoice value, typically for invoices that have been outstanding for up to 90 days.³
4. Close Brothers: Provides full book invoice discounting and invoice factoring, offering an advance of up to 90% of invoice value.⁴
5. Bibby: Offers full book invoice discounting and invoice factoring, with full online management of your facility.⁵

These providers may offer disclosed and undisclosed invoice discounting depending on your company’s perceived risk. While banks generally offer disclosed facilities, Financefair always provides undisclosed invoice financing, so your customers are unaware you’re funding your business with invoice discounting.

Line of credit: draw down funds when you need them

A business line of credit operates similarly to a digital overdraft, providing businesses with funding of €10,000 to €250,000 a year. This funding solution ensures capital is available when you need it, and you’ll only pay interest on what you use.

When you need access to the funds, you send a request to your provider, who transfers it into your business bank account.

The key benefits of a line of credit include being able to:

• Effectively manage large payments for items such as inventory or staffing.
• Work with providers other than your business bank, allowing you greater flexibility. This is also handy if you’ve not had your business bank account for very long, as banks often won’t fund businesses with new bank accounts.
• Choose your repayment terms, whether that’s monthly or as a lump sum. After 12 months, you can opt to continue or close the facility.
• Fund seasonal expenses that occur infrequently during the year.
• Avoid diverting customer payments to a separate account – with a line of credit, the funds are deposited straight into your business bank account.

Line of credit providers in Ireland

Line of credit facilities for businesses are rare in Ireland. AIB is the only bank offering their customers a line of credit.⁶ Financefair is the only provider offering a standalone facility, and it won’t impact any current financing you have with your business bank. 

A line of credit is our quickest funding option to set up. Within 24 hours of setting you up on the platform, your funding will be ready for you to draw down. 

How to get started with Financefair

Our application process is simple. Here’s a quick guide to getting started:

1. Apply: Fill out an application form or get in touch with us to schedule a chat with one of our team.
2. Connect: Integrate your banking and accounting software and share some essential documents with us: your latest statutory financial statement (such as your tax return), business forecasts, and tax clearance certificate.
3. Offer: You’ll get an indicative offer within 24 hours.
4. Onboard: If you’re happy with the offer, our team will guide you through the onboarding process for our platform.
5. Formal offer: When your credit is approved, we’ll send your formal offer as well as:
   1. A DocuSign link for the debenture
   2. A link to set up an account with GoCardless, which is how we collect our fees
   3. Security documentation for Anti-Money Laundering (AML) and Know Your Customer (KYC) 
6. Funding: Once we’ve set your facility up, you can access your funding within 24 hours.

Why choose Financefair for your business finance?

Established in 2015 by finance and accounting professionals in Ireland, Financefair (formerly InvoiceFair) are dedicated to providing Irish businesses with tailored working capital solutions for growth.

We offer a range of funding options to support you, including revenue based financing, business line of credit facilities, invoice discounting, and selective invoice finance. 

When you choose Financefair for your business funding, you can:

Find out how much funding we can offer in one business day

We know it’s vital for you to find out as quickly as possible if your business is eligible for funding – and if it is, how much is available. This is why we make sure that you’ll get your indicative offer within one business day. Once you’ve accepted and have been onboarded onto the platform, you’ll be able to access your funding within 24 hours.  

We combine a team with decades of experience in financial services with data analytics to assess, approve, and monitor risk: giving you a speedy decision. 

Fund your business goals with frictionless, established solutions 

We don’t just set up your funding facility and leave you to it – we’re always available to help you assess your business needs. Together we’ll consider your current requirements, as well as where you want to take your business in the long term. We also know how important flexibility is, so we make it easy to switch to another funding solution if your needs change in the future. 

Here’s what else you should know about our financing products:

• Our funding limits are flexible: We know that you’ll probably need more funding as your business grows, but we also understand that working capital ebbs and flows. If you’re a revenue-based finance customer, this means that if you have a quieter month and take less revenue, we can reduce your funding rather than withdrawing it completely.
• We never require personal guarantees: As a small business owner, you don’t want to put your home and personal assets at risk. As long as you meet our eligibility, we’ll never ask for a personal guarantee. 

• Our pricing is transparent: No hidden fees will crop up later on – you’ll know from the outset exactly what the cost is. 

• You don’t need blue chip debtors to get funding from Financefair: If your business has a subscription or recurring revenue model, it can be difficult to secure funding from a bank. Our alternative finance options, like revenue based financing, can grow your subscription or recurring revenue business.

Grow your business with funding from Financefair

In this article, we’ve looked at some of the funding options that might be appropriate if you’re looking for alternative business loans, along with the providers who offer them. 

There’s a funding solution to fit the requirements of most growing businesses, whether it’s a line of credit, revenue based finance, P2P lending, or invoice discounting. 

To get started with Financefair funding, reach out to us today.

Sources:

¹https://www.linkedfinance.com/start-lending/
²https://aib.ie/business/loans-and-finance/finance/invoice-finance
³https://businessbanking.bankofireland.com/credit/finance/invoice-finance/features-and-benefits/
⁴https://www.closeinvoice.co.uk/
⁵https://www.bibbyfinancialservices.ie/
⁶https://aib.ie/business/loans-and-finance/finance/credit-line