Looking for finance solutions beyond the high street and traditional lenders? Explore the various alternative business funding options open to your organisation in the UK.
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Are you a startup finding it hard to get adequate finance to cover setup costs and kick-start your operations? Or a small business with short-term funding needs getting stuck with strict eligibility criteria? Luckily for budding UK companies, there’s an increasing number of alternative business funding solutions that can provide easier and faster access to capital than many traditional routes.
In this article, we explore the various alternative sources of funding, from crowdfunding and peer-to-peer lending to flexible business loans from digital lenders.
Alternative business funding, or alternative business finance, is any type of funding for a business that isn’t sourced from a ‘mainstream’ provider, such as a bank. It's useful for startups and SMEs, as many of the solutions don’t have the hurdles that more conventional lending frameworks present, such as long application processes, extensive documentation requirements and strict qualification terms.
Most alternative sources of finance can offer faster access to funding with fewer hoops to jump through, often backed by automation, tech integrations (speeding up approvals) and broader eligibility criteria.
Alternative business funding isn’t just loans from fintechs or lending facilities from non-bank finance providers; it also includes other funding options, such as seeking investment from firms and high-net-worth individuals. So, small businesses looking for alternative finance support, you need to consider the pros and cons of debt finance solutions, like term loans, lines of credit or revenue-based advances, and equity finance, such as investment from VCs or business angels.
The main differentiator is that with debt finance, you’re required to repay capital provided (either as regular instalments or based on cash flow), while with equity financing, you give up a degree of business control and share of future profits.
Learn more about the benefits, potential drawbacks and common use cases for equity investment in our short guide to equity finance for growing businesses.
Business funding has changed quickly in recent years with new options springing up, more funding platforms and digital-first lending emerging at a time when high street banks are reigning in their lending to small businesses.
Our SME research in 2025 revealed that 61% of brokers submit the majority of their funding applications to non-bank lenders, while 71% of finance brokers reported that mainstream banks are reducing their appetite for SME lending. The majority cited speed of decision making as one of the main factors.
Digital lenders in the UK are zeroing in on small company needs while offering a range of alternative business funding options to address key issues, like growing business rates/costs, cash flow gaps and the need to invest in new technologies.
Today’s businesses seek easier and faster access to finance, with greater flexibility. A reluctance from banks and their elongated applications and approval processes is seeing a shift away from traditional lending sources. Meanwhile, businesses owners and entrepreneurs are seeing the value and opportunities presented by crowdfunding and peer-to-peer landing platforms.
Below, we explore the world of alternative business funding and the benefits and potential value it can offer your business. Take a look through our summary of the main types of alternative finance UK businesses can explore:
Loans from alternative lenders tend to be short-term, unsecured loans with greater flexibility than most bank loans, supporting small businesses with urgent and diverse finance needs, and those without assets to use as collateral.
Iwoca is a leading provider of business loans for UK SMEs, offering fast and flexible access to significant working capital to help companies manage cash flow and reach their growth ambitions.
You can borrow up to £1,000,000 for a matter of days, weeks or months, only paying interest on what you draw down, and enjoying fee-free early repayments, which reduces your cost of borrowing.
Working capital loans can include options like business lines of credit, inventory finance, invoice financing and cash advances (which we’ll discuss below), which give businesses fast access to short-term working capital to cover operational costs while preventing cash flow problems in key periods.
Working capital or cash flow loans to help mitigate the impact of seasonal revenue fluctuations, enabling you to meet increased demand or cover financial needs and obligations in slower periods, such as paying tax bills, employees and suppliers.
Invoice finance is a way of turning outstanding invoices into readily available cash. By ‘selling’ your outstanding invoices to a finance provider, you’ll receive a large percentage of their value in advance of their payment date, unlocking crucial working capital. Once the invoices are paid, you get the remaining balance, minus the financing company's fees and interest.
There are options to suit different needs and preferences, including invoice discounting, factoring and selective invoice finance.
Specialised financial agreements for hiring and acquiring business assets and equipment, asset finance supports companies looking to spread the cost of key machinery, vehicles, tools and systems.
There are various forms, from hire purchase and contract hire to finance leasing agreements, to suit different needs. They usually start with a deposit, followed by instalments, with an option to return, exchange, sell or buy the assets outright, via a balloon payment, after a certain period, depending on the level of flexibility offered.
A merchant cash advance is a form of revenue-based finance, where lenders offer a lump sum at a pre-agreed borrowing rate, with the loan repaid as a percentage of future card sales. This reduces the financial burden of other forms of debt finance, supports cash flow management and is useful for retailers, online businesses and hospitality companies – those heavily influenced by seasonality. Funding is based on turnover, trading history and revenue.
Peer-to-peer lending (or P2P lending) is a method of business funding that’s becoming increasingly popular. Platforms, such as Funding Circle, Folk2Folk and LendingCrowd, act as marketplaces, connecting people who want to lend to businesses seeking finance.
The specifics vary from platform to platform, but most enable borrowers to gain quick and easy access to finance from interested parties, without brokers or other intermediaries.
Crowdfunding is another fast-growing route for businesses to raise capital, sourcing funds directly from the public and other small-scale investors. Seeking funds from crowdfunding platforms requires you to provide a pitch, a business plan and compelling reasons why people should invest in your venture.
The most popular names in the space include Crowdcube, Indiegogo, Kickstarter and Crowdfunder. Each has a slightly different model, in terms of timescales, if it’s an all-or-nothing model and whether it offers donations, rewards and/or equity-based investment.
Beyond the financial benefits, crowdfunding also enables you to test potential business opportunities, gauge demand, gain feedback and build buzz during the investment window. Find out more in our short guide to crowdfunding.
Your business may want to consider gaining alternative funds from so-called investment ‘angels’. These are wealthy individuals with large funds readily available and eager to back projects in line with their personal goals, such as property regeneration, community projects or simply a profitable business venture.
Your business pitch needs to pack a punch to get an individual’s interest, as savvy investors want to see how they'll make a return on investment. Angel Investment Network, Angels Den, the UK Business Angels Association and local investment hubs are a good place to start, as is attending business angel networking events.
Entering into trade credit agreements with suppliers gives you breathing space to help with cash flow, access to working capital ahead of revenue coming in through sales and helps you build business credit. If you’re prompt with payments (within the agreed credit period), you may be able to negotiate better terms and extended payment timeframes.
There are numerous small business grant and loan schemes offering alternative lending options to growing businesses. Many are government-backed schemes, while others can be sought from local authorities and organisations or innovation agencies.
As grants are highly sought after, they’re competitive and often offered within specific (and limited) funding windows. They usually involve extensive documentation and planning and are subject to strict eligibility guidelines, while many are focused on particular UK regions and certain sectors (tech, energy, manufacturing, etc.).
Designed to help empower SMEs by harnessing the power of tight-knit local areas and people, community funding has the power to use social networks and community circles to help a local business take off.
You may also want to look closer to home and seek support and investment from family and friends. This can either give you an opportunity for agreeing low-cost loans or investment that may not involve giving up too much control of your businesses or deviation from your goals and vision.
Our recent data revealed that 29% of UK small business owners have received financial backing from a family member, with 74% saying it was essential for setting up their business.
Just be careful to ensure everyone is clear on the terms of lending or investment, to set realistic expectations, avoid risks and maintain good relationships.
Alternative funding can be beneficial for various businesses, but it has become an increasingly popular route for startups, small companies and SMEs seeking to grow their operations or maintain a steady cash flow. It reduces some of their barriers to finance from banks and traditional lenders, with many alternative sources of funding
There are numerous reasons to choose alternative business finance solutions rather than applying for finance through traditional routes, including speed of funding, flexible options, ease of application and fewer restrictions on trading history and creditworthiness.
With numerous alternative funding options available, choosing the right solution for your business can be tricky. You need to weigh up the various pros and cons of different options and decide which best suits your financial needs and goals.
Ask yourself the following questions to help narrow down your decision:
If you think a short-term, unsecured loan is the most suitable funding option for you, iwoca’s Flexi-Loans are an ideal alternative to traditional bank loans. Applying for our business loans takes just a matter of minutes, and our smart lending technology enables us to provide approval decisions within 24 hours.
You can borrow between £1,000 and £1 million for a few days, weeks or up to 60 months, with repayments tailored to your business needs and cash flow. The loans work like a line of credit, meaning you only pay interest on funds you draw down, and you can repay early free of charge.
Find out more about iwoca loans and how to apply, or use our business loan calculator to see your predicted repayments for different periods.
Getting funding through an alternative finance provider is generally faster than with a bank. Loans from high-street banks can take several weeks, depending on the funding needs, size and financial circumstances, whereas many alternative funding solutions can provide access to funds within 24 or 48 hours.
Most alternative finance providers are digital-first and targeted at smaller business needs, which often means getting capital quickly, without excessive documentation or asset valuation. Many can provide finance within the same day. However, for equity finance, funding takes longer, as it involves pitching, negotiations and various other key steps before agreements can be reached.
Yes, the vast majority of alternative business funding solutions are regulated by the UK. For example, all reputable crowdfunding and peer-to-peer funding platforms are regulated by the FCA, as are venture capital forms and angel investors, who are categorised into buckets, such as sophisticated investors or high-net-worth individuals. Donation-based or rewards-only crowdfunding solutions aren’t directly regulated, but their integrated payment services are subject to FCA rules.
Not all digital lenders are regulated, but those providing typical alternative lending facilities like unsecured loans, invoice finance, MCAs and asset finance must be authorised by the FCA. So, check the credentials and proof of authorisation when exploring prospective lenders.
Alternative business funding providers support all manner of business types and sizes, from startups and SMEs to more established businesses seeking funding for expansion. Different options suit business needs, so research various alternative funding options and providers to find the one best suited to your needs. You usually need to be operating in the UK as a sole trader, limited company or partnership.
Businesses can often use multiple alternative funding options at once. For example, a company might take a small business loan while also using invoice financing, with one requiring repayments, the other covered by customer invoices.
Some options, like merchant cash advances, are more restrictive, as providers may limit extra funding to avoid repayment conflicts.
Combining equity investment with capital borrowing (blended finance) is also an option. Lenders may offer more capital when equity is in place. Mezzanine financing combines both forms, primarily a debt finance solution with features allowing conversion to equity under certain conditions.
Those with complicated or poor credit histories are still eligible for most alternative funding methods, depending on the circumstances. If you have bad personal or business credit, you may still be accepted for certain forms of alternative funding. Many alternative lenders and equity investors focus more on the strength of your business plan and revenue potential rather than your existing credit history.
Most alternative finance providers offer flexibility to account for fluctuating revenues, seasonal peaks and troughs and unexpected costs. This can include repayments based on cash flow/revenue, only paying interest on funds used, or making free early repayments. Also, if you go down the investment route, you won't need to make repayments at all; instead, you’ll just provide the equity, rewards or benefits agreed.
Looking for finance solutions beyond the high street and traditional lenders? Explore the various alternative business funding options open to your organisation in the UK.
