Alternative business funding: Choosing a lender

As the major online lenders surpass £1 billion in funds provided, we compare business funding options, assessing the key differentiators and similarities.

The alternative business funding market for businesses is thriving right now. Ever since Zopa was introduced more nine years ago, the market has developed tremendously and thus, more and more small businesses are aware of their various funding options.

Up to date, Funding Circle has lent more than £1.5 billion to businesses, and Zopa has lent roughly the same amount for both businesses and individuals.

The entire concept, that was once considered disruptive but dangerous, is now widely adopted by both private and corporate investors, as well as  businesses of all sizes; sole traders, family-owned SMEs, and even medium-cap corporates.

Even the European Investment Fund (EIF) is investing through EZBob, as well as the British Business Bank, which is fully owned by the UK government, that invests through Funding Circle.

Lender similarities

At the end of the day, all alternative business funding sites have the same strengths and weaknesses. P2P or B2B, the concept is quite samey.

What these companies do best is credit assessments. They claim to have developed sophisticated algorithmic models, which goes beyond normal credit scores.

This credit assessment allows the alternative funding companies to apply to a broader audience than banks, and perhaps take risks that traditional banks are unwilling to take.

The fact these lenders are powered by disruptive technology, and machine learning algorithms, also allows them to operate much quicker than banks.

All alternative business lenders in the UK like Funding Circle, Zopa and RateSetter guarantee it won’t take more than a week to process the application and grant (or disapprove) the loan, while cash advance firm Liberis promise it will take less than 24 hours to process the application.

For investors, the benefits are obvious. When interest rates are kept at the level of all times low, a 5-7 per cent annual ROI becomes a good enough reason to give alternative investment a try.

In particular with some lenders like Funding Circle which are transparent about their defaulting statistics (less than 2 per cent currently defaulted up to date).


The first thing most business owners would look for, when they compare business loan companies, is the APR each one offers. At the end of the day, any business owner is looking to pay as little as possible in interest.

Alas, this is not a feasible task, considering the nature of the alternative funding industry. For starters, offers are individualised; each business gets its own risk assessment, and thus, is eligible for different terms. Secondly, very few companies are as transparent as Funding Circle. As most companies aren’t keen on revealing their entire pricing model divided to risk levels and expected APR (besides Funding Circle), It’s difficult to figure out the exact loan terms without actually applying.

Thus, a price comparison between different loan providers is virtually impossible. The only feasible way to compare the market is to complete the loan quote application with multiple providers.

The good news is the application is a simple and smooth process with most lenders, and should not require a great deal of time to complete.

Here are some tips to help you speed up and optimise the comparison process:

  • Each lender would state its minimum requirements on its website. It would be a waste of time to apply for a loan when the lender clearly states a certain type or size of business would not be welcome.
  • For example, Fleximize advertises that it looks for business with trading history of at least six months, with annual revenue of at least £3,000, and profit margins of at least 20 per cent, while iWoca would seek for businesses with at least four months of trading history, earning of at least £10,000 annually, but with no set profit margin.
  • Learn from the experiences of fellow SMEs. Interest rate is not the only factor to weigh in when making such an impactful decision. It’s also about the service, the ease of use, early repayment policies, and the overall experience.
  • As a rule of thumb, cash advances are more expensive than other forms of lending. Although they might be the quickest and easiest form, they will also carry the highest interest. Avoid those if you can get funding from other sources.

To shorten the alternative business funding comparison even further, we recommend to browse through business lender reviews. You may find a lot of the relevant information you need there.

Further reading on alternative finance

Useful link: – Looking for funding? Find the right finance for your business here

Related Topics


Leave a comment