Money Matters

10 business loan alternatives to fund your company

If a bank loan isn’t an option, you have more alternatives than you might think. Here are 10 business loan alternatives available in the UK right now.

Published 5 August, 202612 min read Share

If you’ve applied for a bank loan and been turned down, you might be surprised by the range of business loan alternatives available in the UK. From peer-to-peer lending and crowdfunding to grants and government-backed loans, there are more ways to access funding than most business owners realise, and many don’t require the assets, trading history, or credit score traditional lenders demand. 

Whether you need short-term cash flow support, long-term growth capital, or funding for a specific project, there are 10 accessible and practical alternatives to a bank loan available to your UK business. 

Key takeaways

• There are 10 practical alternatives to a traditional bank loan: peer-to-peer lending, merchant cash advances, pension-led funding, invoice finance, revolving credit facilities, angel investment, crowdfunding, small business grants, asset finance, and government-backed start-up loans.  
• Not every option involves taking on debt. Grants don’t need to be repaid, while angel investment and equity crowdfunding raise funding in exchange for a stake in your business.  
• Some funding options are based on your business performance rather than your credit score. Merchant cash advances, invoice finance, and asset finance may be easier to access if you don’t meet traditional bank lending criteria.  
• The right funding depends on what you’re trying to achieve. Some options are better for managing cash flow, while others are designed to fund equipment purchases, business growth, or early-stage start-ups.  

Here’s what we’ll cover:

Traditional bank loans versus business loan alternatives 

While bank lending remains a popular choice, alternative funding can offer greater flexibility, faster decisions, or different eligibility requirements depending on your business’s circumstances.  

Before exploring the different funding options, it helps to understand how business loan alternatives compare with traditional bank loans. 

	Business loan alternatives	Traditional bank loans
Eligibility	Varies by type; often more flexible	Strong credit history, trading record, sometimes security
Repayment	Varies by option—fixed, revenue-based, no repayment (grants), or equity given up	Fixed monthly instalments over an agreed term
Funding speed	Hours to a few days, depending on option chosen	Typically several days to weeks
Best for	Flexible funding needs or non-standard eligibility	Established businesses with strong financials

To break that down a bit further, features of a traditional bank loan usually include: 

• A fixed sum, borrowed from a high street bank. 
• Repayment in instalments over an agreed term. 
• Dependence on your credit history and trading record. 
• A personal guarantee or other collateral to secure the loan, in some cases. 

Business loan alternatives work differently, spanning several distinct types of funding: 

• Debt-based options, like peer-to-peer lending and asset finance, where you borrow and repay with interest. 
• Equity-based options, like angel investment and crowdfunding, where you exchange a stake in your business for capital. 
• Non-repayable funding, such as small business grants. 
• Revenue-based options, such as merchant cash advances, where repayments flex with your sales rather than following a fixed schedule. 

While bank loans remain a good option for many established businesses, they’re no longer the only route to funding. Alternatives can offer greater flexibility depending on your business stage, cash flow, and funding requirements. 

What is peer-to-peer lending? 

Peer-to-Peer (P2P) lending is a funding option that connects your business directly with private investors through an online platform, bypassing traditional banks entirely.  

It’s one of the best-known business loan alternatives in the UK and can provide unsecured business finance of up to £250,000 in the UK, with some secured P2P loans going higher.  

Online platforms match your business with private investors who collectively lend the money, potentially offering lower rates for borrowers and better returns for investors than a savings account. P2P lending can also provide meaningful unsecured finance, but limits vary by platform rather than being a fixed multiple of what banks would offer. 

Well-known UK platforms include Funding Circle and iwoca, though eligibility criteria and rates vary, so it’s worth comparing options before applying.

What is a merchant cash advance? 

A merchant cash advance is a lump sum provided to your business that is then repaid automatically as a percentage of your future card sales.  

Because repayments flex with your revenue, this option is particularly well-suited to businesses with seasonal or fluctuating income, such as shops, bars, restaurants, and hotels. 

Most of the sectors that use card terminals can be difficult for banks to lend to, as they often rent their premises, hire their equipment, and suffer from seasonal revenue fluctuations. Merchant cash advances solve this by using card terminal sales as a basis for lending. The loan amount is based on recent card sales, and because the lender works directly with your payment provider, repayments are taken at source, making the process feel largely painless.

What is pension-led funding? 

Pension-led funding allows business owners to use their existing pension pot to lend money to their own company, which then repays the pension with interest.  

It’s a creative alternative to a bank loan that lets you leverage an asset you already own without putting your home at risk. 

Not every business owner has a pension pot large enough to make this viable, but those who do often prefer this option over using home equity via a personal guarantee. If everything goes well, the business benefits from the capital injection and the pension pot grows faster than it would have otherwise. It’s a route worth exploring with a financial adviser before committing, given the regulatory complexity involved. 

What is invoice finance? 

Invoice finance is an option that allows your business to unlock cash tied up in unpaid invoices, giving you immediate access to a percentage of the invoice value rather than waiting for customers to pay.  

One common form of this is invoice factoring, where a factoring company buys your unpaid invoices outright and collects payment directly from your customers.  

This option is particularly useful for: 

• Project-based businesses needing cash for their next job. 
• Wholesalers and Business-to-Business (B2B) companies dealing with strict payment terms. 
• One major advantage of this option is that the amount of finance available isn’t fixed: it scales naturally with your business as your sales and invoicing volumes grow.

What is a revolving credit facility?

A revolving credit facility is a flexible line of credit that allows a business to dip into, repay, and reuse funds up to an agreed limit, paying interest only on the money they actually draw down. 

This is similar to an overdraft but often more accessible than what high street banks currently offer. Alternative lenders may make decisions on applications within hours and offer daily interest calculations, giving businesses a practical option for ongoing access to working capital rather than a one-off lump sum.

What is angel investment?

Angel investors are high-net-worth individuals who invest their own money into early-stage businesses in exchange for an equity stake.  

Beyond the capital, many angels bring industry experience, networks, and strategic guidance, which makes this one of the more valuable business loan alternatives for founders looking for more than just start-up funding. Angel investment typically suits businesses that have moved beyond the idea stage, have early traction, and are searching for their first round of external funding.  

From tens of thousands to several hundred thousand pounds, investment amounts vary widely, and angels often invest as part of a syndicate to spread their risk. The UK Business Angels Association (UKBAA) is a useful starting point for founders looking to find and approach potential investors.

What is crowdfunding?

Crowdfunding is an option that raises money by collecting small contributions from a large number of people, typically through an online platform.  

It’s one of the most accessible business loan alternatives for consumer-facing businesses with a compelling story, and a successful crowdfunding campaign can generate both press coverage and customer validation at the same time. 

Three main types of crowdfunding are available to UK businesses: 

• Equity crowdfunding: through platforms like Crowdcube and Republic Europe, this gives investors shares in your business in exchange for their contribution.  
• Reward crowdfunding: using platforms like Kickstarter gives backers a non-financial reward, typically your product or a related perk. 
• Debt crowdfunding: also known as peer-to-peer lending, this involves backers lending money to your business and receiving repayments with interest. 

What are small business grants?

Small business grants are non-repayable funds awarded to businesses that meet specific criteria.  

These are among the most attractive business loan alternatives because you do not have to repay the money or give up equity in return. 

Grants for UK businesses typically fall into three categories: 

• Government grants: funding programmes delivered through bodies such as Innovate UK to support specific business activities, research, or growth initiatives.  
• Local grants: funding administered by councils and regional growth funds to support businesses in specific areas.  
• Sector-specific grants: funding designed for particular industries, such as technology, sustainability, or creative work.  

Competition for grants can be high, and eligibility varies significantly between schemes. Check the UK government’s business finance and support finder regularly and apply as soon as a relevant opportunity opens. 

What is asset finance?

Asset finance is a type of business funding that helps businesses buy, lease, or borrow against physical assets. 

This approach allows your business to spread the cost of purchasing equipment, vehicles, or machinery over time rather than paying upfront. This helps preserve cash flow for day-to-day operations while still giving you access to the assets you need. 

The two most common forms of asset finance are: 

• Hire purchase: you pay for the asset in instalments and own it outright once the agreement ends.  
• Leasing: you use the asset for a fixed period and return it at the end of the agreement.  

Both options are widely available through specialist asset finance providers and some high street banks.

What are government-backed start-up loans?

Government-backed start-up loans are loans supported by government organisations to help early-stage businesses access finance when they may not qualify for traditional bank lending.  

One example is the Start Up Loans scheme, delivered by the British Business Bank, which provides personal loans of up to £25,000 to individuals looking to start or grow a UK business. 

Key features of the Start Up Loans scheme include: 

• Loan amounts of up to £25,000 per applicant. 
• A fixed interest rate of 6% per annum.  
• Repayment periods of one to five years.  
• Availability to UK residents aged 18 or older whose business has been trading for fewer than 36 months.  
• Applicants need to submit a business plan and cash flow forecast.  

Unlike traditional bank loans, the scheme is designed specifically for early-stage businesses that may not have the trading history or financial profile required for mainstream lending. Successful applicants also receive 12 months of free mentoring to help them launch or grow their business.

Choosing the right business loan alternative

The right alternative to a bank loan depends on your business stage, how much you need, what you need it for, and how much ownership or control you’re willing to give up. Most businesses use a combination of sources rather than relying on one option alone. 

Here’s a quick comparison of the 10 options covered in this guide: 

Option	Best for	Repayment	Gives up equity?
Peer-to-peer lending	Established businesses needing unsecured finance	Yes, fixed repayments	No
Merchant cash advance	Card-based businesses with fluctuating revenue	Yes, percentage of card sales	No
Pension-led funding	Business owners with a substantial pension pot	Yes, repaid with interest	No
Invoice finance	Project-based businesses with unpaid invoices	Yes, via invoice collection	No
Revolving credit facility	Businesses needing flexible ongoing access to capital	Yes, as drawn	No
Angel investment	Early-stage businesses seeking capital and expertise	No	Yes
Crowdfunding	Consumer-facing businesses with a compelling story	Depends on type	Depends on type
Small business grants	Businesses meeting specific eligibility criteria	No	No
Asset finance	Businesses needing equipment without large upfront costs	Yes, instalments	No
Government-backed start-up loans	Early-stage businesses unable to access mainstream lending	Yes, fixed repayments	No

Before approaching any lender or investor, it helps to have a clear business plan with realistic financial projections and a good understanding of what you need the money for. The more prepared you are, the stronger your position, and this applies whether you’re applying for a grant, pitching to an angel, or submitting a loan application. 

Find the right funding for your business

Being turned down for a bank loan doesn’t have to stop your plans. The range of business loan alternatives available to UK businesses has never been wider, and there’s an option for almost every situation and stage of growth. 

The businesses that find the right funding aren’t always the ones with the strongest credit history. They’re the ones that know their options, prepare properly, and aren’t afraid to explore alternatives to traditional lending. 

Keeping accurate records helps you stay on top of your finances so you’re always ready to approach lenders and investors with confidence. Explore Sage Accounting and see how it can support your business from day one.

 

Frequently asked questions 

What is the easiest business loan alternative to access in the UK? 

For businesses with card terminal sales, merchant cash advances are often the quickest and most accessible option, with approvals based on recent card revenue rather than credit history or assets. Government-backed start-up loans are also accessible for early-stage businesses, with a straightforward application process and free mentoring support included.

Can I use more than one business loan alternative at the same time? 

Yes, and many businesses do. Invoice finance and asset finance are often used together, for example, as are revolving credit facilities and peer-to-peer loans. The key is to ensure the combined repayment obligations are manageable alongside your cash flow and the terms of each arrangement are compatible. 

Do business loan alternatives affect my credit score? 

It depends on the type of funding. Debt-based alternatives such as peer-to-peer lending and revolving credit facilities typically involve a credit check, which may leave a mark on your credit file. Equity-based options like angel investment and crowdfunding do not. Grants have no credit implications at all. Always check the terms of any application before proceeding. 

Are there business loan alternatives for businesses with bad credit? 

Yes. Merchant cash advances, invoice finance, and asset finance are all typically assessed on business performance rather than credit history alone. Some peer-to-peer platforms and specialist lenders also take a more flexible approach to credit assessment than high street banks. Government-backed start-up loans are also worth exploring, as they are designed for businesses that may not qualify for mainstream lending.

How long does it take to access funding through a business loan alternative? 

Timelines vary by option. Merchant cash advances can sometimes be funded within 24 to 48 hours, and invoice finance can often be accessed within a few days or even sooner once the facility is in place. Crowdfunding can take weeks or months depending on pre-launch, campaign length, and fulfilment, while government-backed start-up loans may take longer because applicants must prepare a business plan and cash flow forecast and go through mentoring and review steps.

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