What Is Alternative Lending?
Alternative lending refers to business finance provided outside the traditional high street banking system. This includes specialist finance providers, private lenders, and newer entrants focused on speed, flexibility, and serving businesses that banks often overlook.
For many SMEs, alternative lending fills a gap — offering options when bank finance is slow, inflexible, or simply not available at a business’s stage of growth. Alternative lenders range from long-established specialist providers to newer firms, but share an approach that differs from the traditional bank model.
Why Has Alternative Lending Grown?
Several factors have contributed to the rise of alternative lenders in the UK SME market.
Changes in bank lending
Banks operate under strict regulatory requirements, which helps manage risk but often results in longer decision times and narrower eligibility criteria. Many viable businesses are declined despite being able to afford repayments because they don’t fit a standard profile.
Demand for faster access to funds
SMEs may need funding quickly to manage cash flow , secure stock, or respond to opportunities. Waiting weeks for a bank decision isn’t always practical, and many alternative lenders offer faster turnaround.
Different approaches to assessment
Some alternative lenders put less weight on historic accounts and more on recent trading performance and cash flow. This can help businesses that are growing, recovering, or simply too young to have a long financial history.
How Alternative Lenders Differ From Banks
The differences go beyond speed. Alternative lenders often structure products and assessments differently from traditional banks.
Eligibility criteria
Banks often have rigid criteria around trading history, turnover, profitability, and credit scores. Alternative lenders can be more flexible for shorter track records, uneven cash flow, or limited assets. That doesn’t mean they lend to everyone — but they may consider applications a bank would decline.
Decision timescales
Bank applications can take weeks. Many alternative lenders aim to provide decisions within days, and some can release funds within 24–48 hours once approved (not universal, but common).
Repayment structures
Alternative lenders may offer repayment structures designed around business cash flow, rather than fixed monthly amounts. Some products link repayments to revenue, which can reduce pressure during quieter periods.
Product range
Alternative lenders offer a wide range of products including working capital loans , invoice finance, asset-based lending, and cash advances. That variety can create options a bank might not provide.
Is Alternative Lending More Expensive?
In general, yes. Alternative lenders often charge higher interest rates and fees than traditional banks. This can reflect higher risk (lending to businesses banks decline), plus the speed and flexibility offered.
But cost isn’t the only consideration. A cheaper bank loan isn’t helpful if you can’t get approved or if funds arrive too late. For many SMEs, faster access and broader eligibility can outweigh the higher cost.
The key is understanding the total cost and whether repayments are comfortably affordable. Cheaper finance that stretches your cash flow to breaking point is worse than no finance.
When Alternative Lending Might Make Sense
Alternative lending isn’t right for every business, but it may be worth considering if:
- •You need funds quickly. If timing is critical, alternative lenders may move faster than banks.
- •You’ve been declined by a bank. Different criteria can mean a different outcome.
- •Your trading history is short. Many alternative lenders consider ~12 months of trading (sometimes less), whereas banks often want longer.
- •Your cash flow is uneven. Seasonal income or growth phases can be more compatible with flexible assessments.
- •You want flexible repayments. Some products flex with revenue, reducing pressure in quieter periods.
When It Might Not Be the Right Fit
Alternative lending isn’t always the answer. Consider carefully if:
- •Cost is your primary concern. If you have time and a strong profile, bank finance may offer better rates.
- •You’re already stretched. Higher-cost funding can worsen tight cash flow if affordability isn’t realistic.
- •You don’t have a clear purpose. Borrowing without a plan is risky regardless of lender type.
Questions to Ask Before Choosing an Alternative Lender
If you’re considering alternative lending, take time to understand the details before committing.
What is the total cost of the funding?
Look beyond the headline rate. Understand all fees, charges, and the total amount repayable.
What are the repayment terms?
Are repayments fixed or flexible? What happens if you repay early?
Is security required?
Some lenders require personal guarantees or assets as collateral. Make sure you understand what you’re agreeing to.
What happens if you miss a payment?
Understand the consequences and any additional charges before signing.
Is the lender reputable?
Look for transparency, clear communication, and evidence the lender is established and properly regulated where applicable.
How to Explore Your Options Sensibly
The smartest approach is to understand your eligibility before applying to any lender — whether a bank or an alternative provider.
Checking eligibility first helps you see which lenders are likely to consider your business without triggering a hard credit search. You can then compare options and make an informed decision rather than applying speculatively and hoping for the best — protecting your credit file and saving time.
Final Thoughts
Alternative lending has changed how UK SMEs access finance. Faster decisions, flexible terms, and broader eligibility can create options for businesses banks often overlook. But costs are typically higher and terms vary widely. The key is understanding affordability assessment , reading the details, and choosing a product that genuinely fits your circumstances.
Want to understand which lenders may be realistic for your business?
Check your eligibility with Floka in a few minutes. There’s no impact on your credit file and no obligation to proceed.
Floka Team
Business Finance Experts