Of course, businesses repay their business loans to the banks with considerable fees and interest every month. The warnings coming out of this year’s earnings reports and related media interviews suggest, however, that fewer such loans may be available next year.
That will be a problem for the banks, as their profits may get even smaller. It need not be a problem for business owners, though: there are many other ways they can raise funds for operations and growth.
Banks are on the Back Foot
The big banks have had, by their standards, a tough year, with profits down 7.8%. They were impacted, among other things, by compensation payments and heightened regulatory oversight.
EY’s report, which aggregates figures for the four big banks, notes: “For the 2019 year, the banks recorded or announced a further $5.7bn (before tax) in remediation costs for poor customer outcomes and regulatory non-compliance. Remediation costs announced since 2017 now total in excess of $8bn for the major banks.
If the impact of previous behaviour is finally hitting banks where it hurts, this is only one element in a shift away from banking finance for business. Quite simply, small businesses have found an array of better financing options, from providers that don’t offer “poor outcomes and non-compliance” to the tune of $8bn.
Here are five good alternatives to consider. All of these business funding methods can also be used in conjunction with bank loans and business overdrafts.
Five Alternatives to Bank Finance
1. Crowd-Sourced Funding: All the rage if you have a consumer product or service that fires the collective imagination, crowd-sourced funding allows start-up businesses to tap into the support base generated by their early marketing. If you know how to create a buzz, this is a great way to combine funding and customer loyalty.
2. Self-Funding: Many very small businesses are started with cash out of the owner’s pocket. For slightly larger, more established enterprises, the money coming in from growing sales can be reinvested. This is a low risk way to grow, and works for many SMEs.
3. Invoice Finance: Because B2B customers usually only settle invoices 30 to 60+ days after they are sent out, invoice finance allows you to access up to 90% of the invoice value within 24 hours. This advance on your own cash can make a huge difference to businesses and raise considerable sums, at no extra risk!
4. Supply Chain Finance: Extend the generosity of early payment to your suppliers, while receiving better terms and still paying for orders a month or two after receipt. This allows businesses to satisfy their orders, and then pay for their supplies from the income the sales generate, whilst only having to repay the funder later.
5. Trade Finance: Finally, for those venturing overseas to buy or sell, import finance and export finance are great options. Good trade finance providers offer support and help with currency, risks and logistics as well as money up front, making foreign trade viable and highly profitable for SMEs.
To find out about trade finance, supply chain finance, and invoice finance, contact OptiPay today. For B2B SMEs – impoverished bankers need not apply.