Alternatives to a Business Loan

Tom Malley FCCATom Malley FCCA

Tom Malley FCCA

There are often alternative ways to improve working capital than raising debt in the form of a loan.


Did you know it’s possible to enter a time to pay arrangement (TTP) with HMRC for PAYE/NIC and VAT arrears? Depending on the £ value of arrears, the effective cost of this may be less than the total cost of debt finance.

A plus point of a TTP arrangement is that it does not require a charge over your business. A negative issue is if you subsequently need to raise debt as the arrears balance will rank ahead of any debt finance you raise. For this reason, lenders may choose to discount your security in respect of this balance or even possibly not offer you a loan at all.

Trade Debtors & Creditors

A great trade credit proposal is one supported by financial analysis. You should demonstrate benefits for both you and your supplier e.g. increased volume for you both.

Leveraging or attempting to leverage further credit from your suppliers has the potential to backfire. The risk is your suppliers see this request as a sign of financial distress on your part. The loss of confidence could even result in the removal of existing trade credit facilities.

For many readers, one of the largest expenses is rent. Unlike most suppliers, your Landlord usually requires a sizable deposit, rent paid Quarterly in advance, and possibly a form of guarantee.

Rent arrears may well be bearing on your mind. If you’re thinking of raising debt to repay rent arrears, BorrowingWell asks you to consider your position first. There may be alternatives that suit both you and your Landlord.

Credit Control

How efficient is your credit control? Is there a reason for giving away free debtor days? Never underestimate how crucial credit control is. This function is one that’s overlooked by so many.

BorrowingWell believes credit control is the first task you should optimise to improve working capital. Additionally, your accounts receivable may form part of your loan security. Demonstrating that you are good at credit control will help improve your chances of a successful business loan application.

Equity vs Debt

BorrowingWell advises you to think about the practicalities of debt and equity finance specific to your situation.

  • Can you accept a dilution in ownership of your business?
  • Loan facilities can be refinanced or repaid. It doesn’t work that way for most equity investments.
  • Are you ok with any recharges or other costs that the new equity Investor may burden on you? Remember, they want to de-risk themselves as much as possible. You may not get away with just a straight equity investment. There could be costs imposed on you by your equity investor.
  • How much do you want the flexibility of not having any fixed interest and capital repayments? How much of your business are you prepared to part with for this advantage.
  • Have you calculated and compared the cost of equity and cost of debt?
  • Any equity vs debt argument requires you to have access to sources for both. How easy do you think it would be for you to raise equity investment? How many potential equity investors do you think you can find?