Loans have been the go-to solution of business finance for many years. But now there’s growing evidence that loans are falling out of favour with an increasing number of businesses.

In its place we’re seeing a steady increase in businesses seeking alternative finance options as a key way to access the funds they need to protect and grow their business.

So, why is this case, and what can businesses turn to in place, or in combination with, traditional business loans?

A shift away from taking on new debts

Business loans were once a popular financing option for small businesses, but in recent years they have become less appealing for several reasons.

Strict eligibility requirements

Many business loans have strict eligibility requirements, such as having a certain credit score or revenue. This can make it difficult for businesses to qualify, especially if they are new or have less established credit.

Long application process

The application process for business loans can be time-consuming and require extensive documentation. This can be a burden for businesses that need financing quickly.

Limited use of funds

Business loans are often restricted in how they can be used, limiting the flexibility of the financing.

Payment terms making cash flow issues worse

Business loans typically require the borrower to make regular payments, which can be a burden for businesses that are struggling financially. If a business is unable to make these payments, it can result in negative consequences such as late fees, damage to credit scores, and even legal action.

Plummeting satisfaction levels

In last two years of polls, conducted by the SME Banking Council, a resounding 70% of SMEs in the Asia-Pacific were less than satisfied with access to credit provided by their main bank. With at least 43% of Australia-based SMEs expecting to take up new or alternative borrowing products moving forward.

What will fill the financing gap?

Working capital solutions are becoming an increasingly popular way for businesses to access the financing they need to grow and operate effectively.

With a growing number of Australian businesses switching their approach and diversifying how they finance their business, we’re quickly seeing alternative financing options becoming an important way to enable businesses to access the funds they need.

Debtor finance, trade finance and supply chain finance, can be used separately or in combination to provide businesses with fast, easy to access finance.

And because these types of finance are essentially based on the performance of your business, you end up with a fit-for-purpose solution that can help your business to meet its short and long-term growth plans. All the while helping your business to stay competitive in uncertain times.

Debtor finance

Debtor finance, also known as invoice financing, is a type of financing that allows businesses to borrow money based on their outstanding invoices.

This can be especially useful for businesses that have long payment terms with their customers and need a way to bridge the gap between the time they deliver their goods or services and the time they receive payment.

Trade finance

Trade finance is often easier for businesses to access compared to traditional forms of business finance. This is because trade finance is typically secured against the goods being traded, rather than the business’s balance sheet or credit history.

Another key feature is the flexibility and speed in which a business can access funds.

Trade finance transactions can be completed quickly, allowing businesses to access financing when they need it most.

Trade finance can also help businesses manage the risks associated with international trade, such as currency risk and credit risk. Which is a key asset in such uncertain times.

Supply chain finance

Supply chain finance is a type of financing that helps businesses manage their cash flow and reduce the risks associated with managing their supply chain.

It can involve a variety of different financing arrangements, such as supplier financing, where a business provides financing to its suppliers to help them meet their own financial obligations, or buyer financing, where a business provides financing to its customers to help them make purchases from the business.

Stop gap financing

Alternative finance providers like Fifo Capital offer short-term financing options designed to meet the specific needs of small and medium-sized businesses. This type of business loan is not meant to be the primary source of funding for a business, but rather a stop-gap solution similar to an overdraft.

One of the advantages of working with alternative finance providers is that they often have more flexibility and can take into account the overall performance of your business, whereas traditional fixed business loans have strict eligibility requirements, long application processes, and limited use of funds.

Alternative financing options such as short-term loans, debtor finance, trade finance, and supply chain finance can provide fast, easy-to-access finance and can be used in combination to provide businesses with a fit-for-purpose solution that can help meet short and long-term growth plans.

The takeaway

As the dissatisfaction with business loans continues to grow among SME businesses, it’s likely that these different types of business finance will play an increasingly important role in helping businesses access the funds they need to thrive.

Ultimately, the decision of whether to use loans or alternative financing options will depend on the specific needs and circumstances of the business. And it’s important for all business owners to carefully consider their options and choose the financing solution that is right for them.

But remember, you’re not alone. There are plenty of alternative finance lenders and advisors that can help you assess what finance options may be a better fit for your business.

Better finance for business

Fifo Capital offers a range of financing options including debtor finance, trade finance, and supply chain finance, as well as short-term business loans to fill a stop-gap need for SME businesses. These options can be used in combination to provide businesses with fast and easy access to finance.

Working capital solutions are becoming increasingly popular as more Australian businesses are diversifying their financing options to access the funds they need to operate effectively and grow.

Debtor finance, trade finance, and supply chain finance are based on a business’s performance, providing a fit-for-purpose solution that can help businesses meet both their short and long-term growth plans. With these financing options, businesses can stay competitive in uncertain times.

If you’re interested in finding out how your business can benefit from other forms of business finance, get in touch with our team.

We specialise in helping SME and corporate businesses to improve their cash flow and their overall business, using their working capital.

Once you understand how to use working capital effectively, you can access a whole new level of potential benefits, discounts and security for your business and your supply chain.