Alternative lenders like us here at Nucleus Commercial Finance use open banking technology to streamline our prospective borrowers’ application process, and in many cases we can approve a loan within minutes of the application being placed. This is unlike traditional banking systems where financial documents are supplied and processed, often leading to back and forth between borrowers and lenders before a decision is made.

Although the banks may take longer to process, they do typically come with the assurance of lower interest rates, which is ideal in cases where a business is not desperate for funds and needs it immediately for an emergency or growth opportunity. If you are a business owner and are trying to weigh up the differences between these lending types, read on, and we’ll go deeper into the subject.

Flexibility of Loan Types and Conditions

You will find that alternative lenders offer a wider range of loan types compared to traditional banks, making business owners more likely to approach them if they need a product that the banks simply don’t offer. More niche facilities like invoice financing and merchant cash advances, or our own products like revenue based loans, allow for more flexibility when borrowing where SMEs and new businesses might not have otherwise been able to meet the repayment requirements of a traditional bank loan.

Traditional banks tend to have more standardised loan types in the form of term loans that are harder to secure, especially if you are a newer business without a long-term financial history; however, to what extent this varies will depend on the lender. We advise that if you are considering a loan speak to your accountant or financial advisor, and try to find out which lenders will be best suited to your unique needs.

Loan Accessibility

Speaking for ourselves here at Nucleus, we are approached every day by prospective borrowers, and we take each business as an individual case to understand their needs and what loan terms would best suit their business. That said, you will find it is important for a business to have a good credit score and history, although for us, this isn’t the be-all and end-all like it is for traditional banks. We also use modern assessment methods, including the previously mentioned open banking technology, which, with your permission, can rapidly assess your financial data and quickly conclude whether you are eligible for a product or not.

Traditional banks tend to make much more rigorous checks over your financial documents, which you can expect to upload copies of onto online portals where they will be scrutinised. For all lenders, a business credit score above 80 is considered low risk, and as you get lower, for banks, your chances of securing a loan will diminish rapidly, and regardless of the lender, you can expect higher interest rates if your score is lower as it makes you a higher risk.

The Cost of Borrowing Between Lenders

In almost all cases, alternative lending options, while being able to deliver funds quickly with more flexible terms, will come with higher interest rates, and this is because we tend to take on more risk by being more lenient with prospective borrowers who otherwise couldn’t qualify for a bank loan. We find that this is rarely an issue for most businesses, especially when they are looking to capitalise on an opportunity or need funds quickly to deal with an issue. With that said, for businesses who aren’t in a rush for funds and are looking to access the most cost-effective loan option, traditional banks will be able to offer the best rates, particularly for business owners who are looking to access a large, long-term loan, those savings can be quite significant.

There are certainly a few important differences between alternative lenders and their traditional counterparts, which is why it’s so important to do your due diligence and speak to your financial advisor to get a full grasp of what each can offer and which will be more suitable to your business. If you need funds at a fair rate and quickly, feel free to contact us here at Nucleus, and we can discuss our loan range and your unique business needs, as well as answer any other questions you have about loan criteria and accessibility.

In short, the pros of alternative business funding come down to how quickly they can be accessed, the simplicity of their application process, and, most significantly, their accessibility for businesses that might not have the perfect financial history. Cons typically come down to the interest rates and term lengths.

There are other things to consider with regard to the pros and cons of alternative funding, too, so if you are a business owner who is considering a loan with a lender like us at Nucleus, and would like to get a better grasp of what to expect, read on, and we’ll go deeper into the subjects to shed a little light on each of them.

The Pros of Alternative Business Funding

Let’s start off with looking at the benefits and also mention the importance of doing your due diligence if you are thinking about borrowing money. We always stress the importance of speaking to your accountant or financial advisor, as they can offer the best advice and guidance, especially on the subject of lender types and their many benefits.

• Quick and simple access to funds: One of the biggest advantages of opting for alternative business financing is how quickly your business can access the funds that we offer. At Nucleus, for example, we use open banking to streamline your application process, and when we consider you, we can access all of your financial records to give you a decision in minutes and, in many cases, even deliver the funds in the same day. Those businesses who were in dire need of cash to avoid sudden problems have told us how valuable our application process is.
• Loan products are more flexible: In many cases, you will find the variety of loans available from alternative lenders to be much more varied and specialised than those of traditional banks. Our own revenue-based loans are an example of this, where businesses who meet our criteria can access a lump sum of cash and then pay us back weekly based on your revenue. Thanks to the variety of different loans alternative lenders offer, it means businesses are much likelier to find a financial solution that meets their needs, and is more specialised to the right purpose, whether that be for managing your cash flow or investing in equipment and growth.
• Accessibility for SMEs and Startups: While many banks will have their own types of startup facilities, you will likely still find that due to the stringency of their eligibility criteria, and reliance on proving that you have a great credit history, it can be challenging to secure a loan with them. This is different for alternative lenders, and certainly for us at Nucleus who will take each prospective borrower as a unique case, considering a larger range of factors rather than simply the number of your credit score. Through this, we aim to help as many budding business ventures as possible to succeed in their goals, and we hope to be a strong consideration for business owners who are considering either a term loan or revenue-based lending.
• More customisable repayment options: At Nucleus, our loan repayment structures are pretty standard, with our term loan repayments being monthly and revenue-based loans being weekly; however, many alternative lenders will offer their borrowers customisable repayment options to help meet their needs. This can help in cases where a business has unusual income streams, so weekly repayments are more suitable regardless of loan type, and can be discussed with the lender you approach prior to making an application. In most cases you will find that lenders are willing to work with you to find a middle ground when offering their services.

The Cons of Alternative Business Funding

• Interest rates: Because of the way alternative lenders operate, being fast, flexible, and more lenient towards businesses that may not have the perfect financial history, we tend to have higher interest rates than our traditional counterparts, and this is because there is usually more risk involved despite our best efforts to ensure our prospective borrowers are more than capable of repaying their debt.
• Repayment periods: You will find that alternative loan types have shorter repayment periods, with our own term loan being available between 3 months and 6 years, compared to what you can secure with traditional banks, with some offering repayment periods of up to 30 years. For many businesses, short-term loans aren’t necessarily a con. However, it does mean that you need to be fully prepared to take the debt on, as the repayment schedule may become too demanding if your business goals don’t pan out as you planned. It’s also another reason why you should always speak to a financial advisor before you commit yourself to any kind of facility, traditional or otherwise.
• Unfavourable lenders: Most alternative lenders, especially bigger names, will most certainly be trustworthy and reliable, however it is worth mentioning the need for prospective borrowers to be wary of lenders who intentionally use predatory practices where they impose things like hidden fees or terms that can trap a desperate business in a debt cycle. This is why we always ask that you do thorough research on the lenders you approach and ask for second opinions before taking on debt.
• Risks of debt reliance: Following on from the last point, if you take on debt from a lender who has either let you borrow knowing you will struggle to meet your repayments, or something has caused your business to struggle with revenue, you may then need to take on even more debt to cover costs, and the pro of alternative loans being easily accessible can suddenly become an enormous con, having the potential to lead to an unpayable debt cycle.

By taking the time to understand both the pros and cons of what alternative lenders can offer your business, you will be able to make an informed decision based on your own unique needs, while avoiding any potential negatives that tend to be associated with the alternative route to getting access to finance.

As with any business loan application, you can expect your prospective lender to have a set of criteria you will need to meet for your application to be successful. These typically include your financial statements, proof of credit history as well as how long your business has been in operation, and in many cases a thorough business plan to demonstrate what your intentions for the loan are and how you will successfully repay the debt.

Unlike traditional bank facilities, you will find alternative funding options much more variable and accessible and, in most cases, more flexible in their terms and conditions. Below, we’ll run through some of the most popular options we find prospective borrowers looking for here at Nucleus, and then discuss how you can go about making the right choice for your business.

Finding the Correct Loan Type for Your Needs

Before starting out on any application for a loan, we first stress that you should speak to your accountant or financial advisor, as they will have a wealth of experience on the subject of loans and can help you from the offset get a solid understanding of what will be most suitable for you. There are many loan and lender types that will each come with their own terms and fees, and it is always better to have more information on your side than less.

• Revenue-based loans: With a revenue-based loan, you can get an upfront lump sum and then pay it back over time based on future revenues. Our own revenue-based solution is offered at anywhere between £3k to £300k, with terms between 3 and 12 months, and can be accessed by businesses who have been operating for at least 4 months and complete a minimum of 5 e-commerce or card payments per month.
• Term loans: Term loans are a common facility that allow businesses to borrow an amount that is paid back over a course of months, and term loans at Nucleus are available from £10k to £2m. Term lengths are flexible, running between 3 months to 6 years, and our interest rates start at 16.5%.
• Invoice financing: By selling unpaid invoices to prospective lenders your business can get access to that missing cash immediately, with a slight loss on the overall value of the invoice, however with the benefit of being able to cover your short term costs if you are struggling.
• Merchant cash advances: This is a unique loan type that will allow your business to access an agreed on amount of cash, and you will only make repayments based on the cash you use from that lump sum, as opposed to being burdened with the entirety of a term loan and repayments that come with it.
• Peer-to-Peer (P2P) lending: Through P2P lending you can connect with individual investors through online platforms, and you will find they each have their own unique types of criteria, however may be more specialised to your businesses purpose, so although at first glance it may seem they don’t offer the security of banks or other trusted online lenders, there is a good chance they can be more helpful to certain niches.

Researching the Right Provider for Your Business

Once you have done your due diligence and figured out the best loan type for your business needs, next, you can start looking across the market to find which lenders offer that loan type, and then which ones offer the best terms and conditions. Again, this is where we advise you to contact your financial advisor, as you will want help finding a reputable provider who has a track record of working in your business’s niche. If you are not necessarily in a niche and are just looking for something like a term loan, then you will still want to compare each lender’s terms and fees, as well as look at how their application process works.

Prepare Your Financial Documents

Going back to our mention of financial documents above, in almost all cases you will need to present a set of papers for prospective lenders to see so they can get an idea of how well your business will be able to pay back its debt, and if it has failed to do so with other loans in the past. There are three primary sets of documents you should expect to present:

• Your business’s statements: This set of documents will include things like bank statements and tax returns, as well as when your business started trading and annual revenue. Lenders will want to get a complete view of your business’s financial health before working together to ensure you can afford the debt.
• A credit report: Regardless of the lender, traditional or otherwise, we will always take your credit history and rating into consideration when you apply for a loan as it is another factor that can help us determine the risk associated with your options, but that said, alternative lenders are known for being more lenient and will be more likely to look at your business as an individual rather than a number.
• A business plan if requested: Though not all lenders will request a business plan, it is always advisable to draft up a thorough plan anyway, detailing your business model and financial projections, as well as how you intend to use the loan, with a repayment plan and exit strategy. This is because, even if the lender doesn’t require it, you will then have a complete plan you can refer back to in the future to ensure you keep inline with your original intentions for the loan and its repayment schedule.

The Importance of Professional Advice

It’s important to keep reiterating just how important it is for business owners to consult with their accountants or financial advisors before they commit themselves to potentially large sums of debt, as the insights and advice they can offer will be invaluable, plus they will be able to guide you through the entire process, from deciding how much cash you will need to who the best lenders are to approach. They will also be your best option for understanding any terms and fees, as well as help you to prepare all the correct documents.

Making Correct Use of the Loan

It’s also worth noting that once you have successfully accessed an alternative funding option, it will be important for your business to manage those funds properly over the course of your loan term and use them for the correct purpose that they were borrowed. This will have multiple benefits and increase your chances of accessing future alternative funding, by demonstrating to your lender that you are using the loan as agreed upon you will build trust, and by making your repayments on time you will improve your credit score. Both of these things will be beneficial to your business, and making good use of the funding will also help you achieve the growth you’re aiming for.

Unlike traditional lending, alternative business funding will require a prospective borrower to demonstrate a satisfactory credit history and sound financial records. You will also find that depending on the lender, other criteria, such as presenting a thorough business plan or proving the length of time trading, will be necessary, and together, those points of proof can be used to determine whether or not a loan application will be successful or not.

Because each lender has their own criteria, we advise that if you are seeking a loan, research them thoroughly and make inquiries. You should also discuss your options with a financial advisor too, as this can save you a lot of time and potentially avoid a poor and costly choice. With that said, we can go further into our own criteria, so if you are considering a loan, below we’ll cover what you can expect from us at Nucleus Commercial Finance, and also get an idea of what you can generally expect on a more broader spectrum amongst other lenders.

Nucleus Revenue Based Loans

Our revenue-based loan option focuses on your business’s revenue stream rather than just your credit score, and through open banking and analysis of your sales data, we aim to offer prospective borrowers a suitable loan amount that they can afford. Seasonal and E-commerce businesses most frequently approach us for our revenue based loans, so if you think this fits your business model, the following are our terms and criteria to apply:

Terms and Criteria:

• Term Length: 3 to 12 months.
• Loan Amounts: £3,000 to £300,000 (75k max if you are a non-homeowner).
• Factor Rate: Between 1.15 and 1.35
• Repayment Method: Fixed weekly direct debits
• Trading History: Minimum of 4 months.
• Monthly Transactions: Minimum of 5 transactions per month.
• Revenue Source: E-commerce payments and/or card takings.
• Directors: At least one director based in the UK.
• Business: Must be based in either England, Wales, or Scotland to apply.

Nucleus Term Loans

Our UK based term loans are standard short to medium term loans that can be either secured or unsecured, depending on the prospective borrower’s needs. They are pretty standard with regards to loan types, with your business receiving a lump sum of cash upon successful application, and monthly repayments required over the duration of your term. Let’s look at the terms and criteria you can expect should you intend to approach us and apply:

Terms and Criteria:

• Term Length: 3 months to 6 years.
• Loan Amounts: £10,000 to £2,000,000
• Interest Rates: Starting at 16.5%
• Repayment Method: Fixed monthly repayments
• Trading History: Minimum of 12 months.
• Credit Score: Good credit history, though we will consider a broader range of factors.
• Financial Documentation: Comprehensive financial statements, including profit and loss statements, balance sheets, and cash flow statements.
• Directors: At least one director should be a UK homeowner.
• Open Banking and Open Accounting Access: Required for longer-term facilities (up to 72 months).

Our Approach to Lending

Thanks to our use of open banking, our application process is extremely streamlined compared to other lending platforms, and once you have made your initial inquiry by providing us with your name, address, and other primary details, you may be able to receive an answer to your application in just minutes. We will also take each prospective borrower as a unique case, so if your credit history isn’t perfect, but you can demonstrate to us the reasons for that, we will hear you out, along with your business plans. Through our user friendly approach to lending, we hope we can help as many entrepreneurs as possible to reach their business aspirations and long term goals.