I have been refused a bank loan for my business – What alternative finances can I use?

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So, you’ve been refused a loan which was meant to kickstart and grow your business.

This can feel disheartening and frustrating, but it is important to remember there are multiple ways of securing the funds your business needs.

Government grants and schemes

The Government and local authorities offer various grants and schemes that are designed to support SMEs like you.

Perhaps you want to develop your research, or you require support when exporting – whatever the reason, these grants can cover a range of wants and needs.

You do need to remember, however, that the grants often come with specific eligibility criteria, so make sure your SME fits the requirements before you apply.

For more information and to find the right grant for you, contact us today.

There is also a scheme called the Recovery Loan Scheme (RLS) which is a government-backed initiative that was created to help small businesses during and after the pandemic.

This scheme has now been extended to 2024, so get in touch today to speak with our experts. The RLS gives lenders a 70 per cent guarantee against the loan facility.

For you, this means there is less risk to the lender not receiving back their investment so they are more likely to approve your business for a recovery loan rather than a business loan.

EIS and SEIS

These schemes were created to be Government initiatives that encouraged private investors to invest in fledgling UK businesses.

This means that the risk that comes with investing in any early-stage business, by giving investors generous tax breaks, is significantly reduced.

The criteria for SEIS-eligibility includes:

UK-incorporation
You have fewer than 25 employees
You have never received investment from a venture capital trust
You are not and have not been under the control of another company.

The criteria for EIS-eligibility includes:

You are permanently established in the UK
You don’t trade on a public stock exchange
You are not under the control of another company, nor does another company own more than 50 per cent of your shares
You don’t plan on closing after completing a project (or series of projects).

EIS and SEIS offer lots of tax incentives, including:

Income Tax relief – 50 per cent on SEIS investments and 30 per cent on EIS
CGT exemption – This applies to any gains that come from the sale of SEIS and EIS shares after three years.
Zero Inheritance tax – This tax does not apply to SEIS and EIS shares that you have held for at least two years.
Making a loss – If SEIS and EIS shares are sold at a loss, investors can offset the loss against their CGT.

These schemes both make investing in startups and scaleups more appealing due to their tax benefits – investors who put more money into your SME will get a tax break on the money they invest.

For investors, the biggest benefit is the amount of Income tax relief they receive through the two schemes.

From April 2023, investors now receive a 50 per cent tax break on up to £200,000 they invest through SEIS every tax year.

With EIS, investors receive a 30 per cent tax break on up to £1 million they invest through EIS every tax year.

This makes your SME much more of an attractive prospect to investors, but only if you make SEIS shares available to investors before you start taking on EIS funding.

Peer-to-peer lending

Another alternative route to secure finance, outside of a traditional bank loan, is via peer-to-peer (P2P) lending.

P2P lending platforms allow you to connect your business with investors who are willing to lend money – often via tax efficient investment schemes.

This system bypasses the traditional bank and financial institution frameworks and allows you to borrow and access funds directly from the individual investor.

This can be done through online platforms or websites – remember, if you are declined by one P2P lender it does not mean you have been declined by all.

Asset finance

You can use your business assets (equipment, property, vehicles etc) as collateral for a loan.

The lender you choose will evaluate the value of these assets and provide a loan based on their assessed worth.

You might also want to consider the option of exploring asset finance if you are looking for funding to purchase equipment or vehicles for your business.

Then, your lender will use the asset as security for the loan, meaning there is a less perceived risk.

It is important you know how to obtain funds for your business should your bank loan be rejected.