Creative Finance may sound like the sort of thing to get you on the front page of the tabloids, if not a spell at her majesty’s pleasure, but its set to become the buzz word of 2013. With the recourse to traditional lending options such as overdrafts, bank loans or re-mortgaging your own home becoming more and more difficult, the successful businesses are those who are being more creative in the way they approach financing.

Angel-investment is so last year, with few entrepreneurs really willing to surrender 30% + of the company that they have built up on their sweat, blood and tears for what they would see as being a relatively small sum.

Factoring has been a favourite for small busineses for a while but many of these systems are run by the ‘unstrusted’ banking sector and with commission fees noticeably increasing in recent years, business people are looking for other lending options. Many are suggesting it could be the end of the mono-banking culture we have traditionally used for business, with the air of modern trends such as collaboration and social sharing coming through in these new alternatives.

If you are not yet up to speed with what alternatives are out there here are five I’ve come across, briefly explained:

1. Micro-Lending

Most businesses only need a small amount to kickstart their business and those best placed to understand that are those who specialise in a sector or perhaps region, which is where micro-lending comes into its own. Micro-lenders in the UK tend to come in the form of local regeneration funds and social project based organisations who will lend small amounts to help their greater good.

It is very much the chosen option for social investment with many platforms set up to help fund third world projects from first world investors, but there are opportunities for UK companies to seek investment too. Being more specialised, micro-loans tend to be handed out for specific projects or one-off events but can usually be used alongside other forms of financing to secure a bigger investment across the board.

  • Finance Wales – Helping Welsh SMEs looking for finance to cover debt, mezzanine investment and equity investment.

2. Crowdfunding

Crowdfunding is all about getting interested parties to pitch in with small amounts to create the greater good. Again it is usually project specific but projects financed via crowdfunding in the UK and globally cover a full range of topics. It’s Dragon’s Den/business angel style investment but much more accessible both for investors and those seeking investment.

Very rarely is an actual stake in the business offered – in fact many crowdfunding hubs forbid this – instead incentives are offered according to the size of investment, such as free gifts, promo copies, launch event invites, etc that encourage the investor to feel part of the project and see it in action. Most of the crowdfunding hubs are free to pitch your idea on, with commissions in the region of 5-10% if you reach your funding target. Where crowdfunding really succeeds is playing a part in your start-up marketing too. With 100s of investors all keen for the project to succeed you have in-built brand ambassadors to help promote your project.

  • Kickstarter – The big one from the US now with a UK specific site too
  • WeFund – The first UK specific crowdfunding platform and seemingly more popular than ever
  • Crowdfunder – Specialising in creative projects. Recently merged with PeopleFund
  • CrowdCube – Slightly more angel investment with equity holdings often offered.
  • Seedrs – Another for those seeking more angel style investment but from £10 upwards

3. Asset-Based Funding

A familiar kind of funding akin to mortgaging your house or pawning your jewellery. You have a physical asset, be it stock, equipment or property and a lender advances you money with that asset offered as security should you default. Interest rates vary greatly with many new operators in the market charging very high APRs but being sold as cashflow solutions on a short-term basis.

4. Merchant Cash Advances

A form of factoring that enables those doing high volume card transactions get a lump sum in exchange for future card sales. Usually agreed as a fixed fee per card sale and can often be arranged unsecured, the lender only getting paid when you get paid/take the card transaction, leaving no repayment term or penalty if sales slow and so do your repayments.

  • PayPal Merchant Cash Advance – Based on your daily PayPal transactions

5. Peer-To-Peer Funding

Aiming at cutting out the middle-man. Peer to Peer agents basically link up people who have spare money to lend directly to people who want to borrow it. The ideas is to avoid banks altogether, minimise overheads and red-tape and help the borrowers and the lenders get better rates than they would via banks, etc.

  • Zopa – Works more on a personal level than direct to business but an opportunity to improve your personal cash-flow to invest in your business
  • Funding Circle – backed by some bigt names in angel investing and the entrepreneurial world.

Whether it is finance, marketing or any other sector of your business 2013 is set to require more creativity and “out-of-the-box” thinking to stay in the game and the above are just some ways that other businesses are looking to do it.

Do you have other plans? I’d love to know and to be able to share them. Of course, every finance model and provider should be thoroughly researched before you head into it, to make sure it is the best fit for your business and we certainly don’t endorse any specific organisation or method. As well as proper research I would also advocate you trying to speak direct to other businesses that have used a specific finance model so you get to hear all the possible negatives too.