Exploring Alternative Finance Options for Irish Businesses

Introduction

Whether it’s a start-up struggling to get off the blocks, or a family firm that’s operated for generations, every business will need external funding at some time or other. Loans or overdrafts can be the automatic go-to options for many Irish businesses – but they’re far from the only choices.

In this article, we’ll examine why Irish businesses should look beyond the obvious when it comes to financing. We’ll also highlight why companies should give themselves as many options as possible when it comes to funding – and demand lending solutions that work for them, not just their lender.

Although no local Irish community could survive without the goods and services they provide, smaller or newer firms don’t always get the welcome they deserve from mainstream lenders.

Alternative lending options, on the other hand, can prove to be far more affordable and manageable. As such, they can boost a business’s chances of success rather than add extra pressure.

So let’s examine what alternative business finance consists of, and how it can oil the wheels of growth for Irish businesses.

Key takeaways

In summary, this article explains that:

External funding can both protect businesses from temporary financial setbacks, and also be used as a growth stimulant. However, traditional funding sources such as business loans aren’t always the most suitable funding solutions.

Alternative finance covers options such as peer-to-peer lending, revenue linked lending, invoice financing and crowdfunding. These can offer faster and more tailored ways to access finance and don’t lock borrowers into inflexible repayment schedules.

With its express commitment to support Irish SMEs, GRID Finance offers loans between €10,000 and €500,000 across our suite of loan options. Decisions are made within 48 hours and repayments are flexible, and adjusted to business revenue levels.

What is alternative business finance?

Whenever a business requires funding – whether to cover short-term cash flow challenges or perhaps with an eye to expansion – overdrafts and business loans are the usual first-stop options. But they certainly aren’t all that’s available.

As its name suggests, Alternative Business Finance (ABF) refers to funding options outside the usual channels. So instead of applying to a high-street bank, businesses can approach the likes of specialised lenders, invoice financing providers, peer-to-peer platforms or asset-based lenders. Today, crowdfunding can also be a viable option.

This begs the question: why bother? Surely, a tried and trusted route is the most straightforward way to raise funds? Well, as anyone who has applied for a traditional business loan from a rigid, risk-averse bank will confirm, traditional bank finance typically involves jumping through many application hoops.

Extensive documentation, impeccable credit histories, and substantial collateral can all be required before an application is considered. What’s more, the standardised lending products offered by banks don’t always match what individual organisations actually need.

Businesses such as start-ups and SMEs often require funding that takes a more realistic approach to their specific circumstances – for example, their growth stage or ability to repay. They can also require a level of speed and flexibility that banks aren’t always willing to offer.

In stark contrast, ABF prioritises flexibility and customisation. When they design their funding solutions, ABF lenders take specific circumstances into account. These can be seasonal cash flow challenges, rapid growth requirements, or new businesses with few assets or little or no trading history.

Why Irish firms are exploring alternative finance

Picking up on some of the themes touched on in the previous section, there are some very clear and obvious reasons why Irish businesses might consider ABF if borrowing is on their agenda.

One of its most attractive features is the speed of the application and approval process. For businesses whose directors are already putting in double-shifts, any option that reduces time spent on paperwork is bound to be attractive. Similarly, if an opportunity needs to be seized quickly, no ambitious business owner or director will want to see it slip away while a lender is considering their application.

Flexibility is the other highly attractive characteristic of ABF. Understandably, many businesses don’t relish the idea of being locked into rigid repayment schedules. After all, if business income ebbs and flows (as it does for many businesses), the obligation to meet fixed monthly repayments adds an extra and unwelcome level of pressure.

Types of alternative finance options in Ireland

In reality, the term ‘alternative business funding’ covers a number of different methods of raising money. Some have been available for many years, while others are the product of the digital era. They also differ in how they operate and when they should be availed of.

In Ireland, five different ABF options are broadly available:

Business Funding Platforms are designed to connect companies directly with funders, generally through online peer-to-peer lending, or crowdfunding websites. So rather than deal with a single lender, these platforms let businesses pitch their need for funds to multiple potential backers simultaneously.

This is a route some businesses might take if they feel (or know) that traditional banks would refuse them. Pitching their proposition to other businesses in the same sector – or the general public – may result in a more sympathetic hearing.

Revenue-Based Funding is an option that links loan repayments to business levels. During slow trading periods, repayments are reduced rather than remaining fixed.

This more flexible funding method is the model offered by GRID Finance, and can be especially attractive to businesses whose cashflow is uncertain or has seasonal variations.

Asset and equipment finance is designed to let firms acquire large-ticket items such as machinery, vehicles, or technology without depleting cash reserves.

Within this category, specific options include leasing (see the following section), hire purchase, or asset-backed lending.

Working capital funding assists businesses facing temporary cash flow challenges. Options such as invoice financing or trade finance unlock cash that’s currently tied up in unpaid invoices.

As such, it bridges the gap between paying suppliers and receiving payments from customers.

Digital solutions are among the newer options available to business borrowers. These combine the speed and flexibility of technology, real-time data and artificial intelligence to automate the application process.

With this, decisions can be made within hours, a massive benefit to any Irish business that needs funding fast.

Key types of business funding available in Ireland

In the previous section, we touched on how GRID Finance offers Irish businesses more flexibility than they would usually receive from traditional lenders.

Now we’ll examine what’s on offer in more detail, whether the borrower is geared towards business-to-business or business-to-consumer markets.

1. B2C Businesses

GRID Finance’s solution is designed for businesses whose revenue is mainly generated through card transactions
. Retail, hospitality or online firms are obvious examples, and these can borrow up to €500k on a
‘repay-as-you-earn’ basis.

In other words, repayments alter according to the business’s changing daily revenue from credit/debit card sales. Adding to the convenience, repayments are made automatically via the business’s card terminal.

2. B2B Businesses

Companies that sell services or products to other businesses can find themselves facing long payment cycles. Since this isn’t always ideal from a cashflow perspective, GRID Finance lets businesses borrow up to €500,000, with repayments based on average trading levels over five days.

Small variable repayments are then taken from the business’s current account.

3. Finance Leasing

GRID Finance tailored lease financing removes the need to deplete the business’s bank balance when a major piece of equipment is acquired. At the same time, leasing eliminates the headaches that often come with owning and disposing of major items.

As with other GRID Finance funding options, the emphasis is on flexibility, simplicity and supporting businesses by not putting them under unnecessary financial strain.

The benefits of alternative business finance

Some businesses are in a privileged position. They don’t need especially fast lending decisions, they have long and stable credit histories, and they can meet fixed repayments without breaking a sweat.

Such businesses will be welcomed by standard lenders whose loans are inflexible and rooted in a very traditional view of the commercial world.

Alternative business financing is designed for businesses whose history, trading profiles or borrowing requirements can’t be easily pigeonholed.

Primarily, ABF options are far more suited to borrowers that need fast decisions from lenders who understand the realities now facing Irish businesses.

Life – and commercial life in particular – is more uncertain than ever. Funding that’s flexible enough to take the ups and downs of business cycles in its stride is an essential support for start-ups, companies operating in unconventional sectors, or those with ambitious growth plans.

Practical guidance for choosing the right finance option

When deciding on the best business financing option, many factors other than interest rates should be considered.

The smart approach is a holistic one; in other words, consider your growth strategy, analyse your cash flow cycles, take your business sector into account and aim for the most comfortable fit possible between your business and the funding source.

Short-term debt (such as an overdraft) is never a suitable way to fund a long-term asset such as a factory building. Instead, long-term loans or equity would be more appropriate, Likewise, short-term funding is the only option if you face a brief cash squeeze.

Next, analysing your cashflow cycle will help identify how flexible your repayment schedule should be. For example, do you encounter predictable revenue dips during the year?

Finally, consider what’s suitable for your specific sector. A logistics firm may turn to asset finance or leasing to acquire vehicles while a growing software company might need venture capital or offer equity to fund talent recruitment.

How to identify the best funding source for your business

Identifying the most appropriate funding source for a business involves being crystal-clear about your precise need for the finance, the timescales involved and the business’s commercial realities – for example, is it a long-established company in a traditional sector or a growth-hungry start-up in an industry that didn’t exist ten years ago?

Starting with the basic need for finance, short-term working capital (for example, to cover a seasonal dip in trade) should be matched with flexible, short-term debt – invoice financing might be useful in this case. For a longer-term, capital-intensive plan (such as buying a factory), long-term debt or even seeking an equity investor may be an appropriate option.

Next, a business needs to consider the sector it’s operating in. For example, a high-growth tech start-up with very few assets might offer equity to angel investors or venture capital (VC) firms in exchange for funding. In contrast, a long-established manufacturing firm would probably turn to asset finance or a bank loan secured against property.

Finally, it’s important to remember that there may be more than one funding route. The optimal solution is often a mix – for example, an overdraft for daily running costs, a term loan for equipment, and re-invested profits to fund growth. The aim is always to minimise cost and complexity while maximising flexibility and benefit to the business.

GRID Finance’s role in alternative business finance

We’ve established that alternative finance can offer far faster and more flexible methods of funding business growth. The obvious question, then, is which provider to work with?

GRID Finance immediately stands out for a number of reasons.

One that many clients cite is GRID Finance’s flexible approach. This often comes as a welcome contrast to the stance of traditional lenders where borrowers must adapt themselves to meet rigid repayments, no matter what.

Even if weather, cyber-attacks or another unforeseen event leads to a slump in business, traditional lenders will still demand their regular repayments.

GRID Finance takes a far more realistic and understanding approach. Repayments are matched to business levels. So when the business is trading well, repayments will rise as they are more affordable. Similarly, during the inevitable slower periods, repayments will fall.

Added to this, GRID Finance takes a digital-first, insight-driven approach which speeds up the entire application process. This means there’s less chance a good opportunity will slip through your fingers because you’re still waiting on a decision.

This streamlined, customer-first approach is taken for a very simple reason: GRID Finance knows just how vital businesses are to every community across the island. They provide the jobs, the products and the essential services that everyone depends on.

So why put roadblocks in their way? If GRID Finance can maximise the chances that businesses will succeed and grow, everyone benefits.

The GRID Verdict on Alternative Business Funding

In an ideal world, every business in Ireland could grow organically by drawing on its own reserves whenever it needed investment. But the real world is different. At some point or other, virtually every business will turn to external funding as opportunities present themselves or cashflow reduces.

The full funding palette should always be considered, rather than always falling back on the default options of loans or overdrafts. By doing so, businesses can reduce financial pressures and unlock far more funds than would otherwise be available to them.

By shining a spotlight on the range of options and possibilities, this article will hopefully help your Irish business overcome challenges and seize opportunities that might not have been considered otherwise. Certainly, you can be confident that GRID Finance will do its utmost to help your business grow.

So, if you have a need for funding, consider looking beyond the obvious to see what alternative business funding offers.

And if you need a fast decision about borrowing up to €500,000 in a way that’s flexible and completely transparent, check out what GRID Finance offers by applying online here
today.