Alternatives to a business overdraft

Old-fashioned bank overdrafts are a useful cash flow solution, but they’ve become more difficult to access as banks have been reluctant to lend. As a business owner, it’s easy to take it personally if an overdraft is refused or reduced, but it’s not just you. There are promising business overdraft alternatives out there – here’s our guide to some common, and some lesser-known, alternatives to a business overdraft:

Factoring and invoice discounting

For firms looking to expand, or simply seeking breathing space, factoring and invoice discounting are available if you give credit to your customers, like the recruitment, haulage or business services sectors. The great thing about this type of business finance is that it flexes naturally with your business. You can also get finance against purchase orders, or even auction your invoices!

Fast business loans

Many businesses used to dip into their overdrafts in times of need - but didn't need them the rest of the time. If you only need to finance a short-term shortfall, there are purpose-built products within alternative finance that can help you bridge the gap without committing to long-term finance.

Merchant cash advances

For businesses like shops, hotels and restaurants receiving lots of card payments, merchant cash advances are an incredibly flexible way to raise money. The best thing is that you pay back the loan as a percentage of your turnover, and overpayments can also be agreed at short notice to cover unexpected bills.

Revenue loans

Like merchant cash advances, this new type of business loan lets you pay back as a fixed percentage of your revenue, aligning to your trading peaks and troughs.

Trade finance

Trade finance is a complex but useful source of funds for your stock purchases, typically when you’re bringing in goods from abroad, or exporting them to your seller.

Peer-to-peer lending and crowdfunding

Peer-to-peer lending and crowdfunding allow you to borrow money from or sell equity to one or more individuals using an online platform. The process links suitable businesses with investors looking for a decent return on their investment.

Asset refinance

Got assets such as machines, vans or printers that you’ve paid down? Lease them back so you keep them in your business, but free up much-needed cash. There's lots of different types of asset refinance – as well as different types of equipment finance like equipment leasing – so this is an area that can help lots of businesses.

Property refinance

Much like refinancing your assets, equity in your home or premises can be used to secure business finance; this is a complex and specialist market, so understand your options.

Revolving loans

Stepping into the void left by banks withdrawing or reducing overdrafts, new lenders are entering the market offering something very similar. You’ll need a good trading history, or a strong business case.

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