Finance February 19, 2016 Last updated September 18th, 2018 1,961 Reads share

Three Types of Growth You Can Achieve with Alternative Finance

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When we read about alternative finance these days, it’s usually framed in the context of bank funding. It might go something like this: a small business needs finance and gets turned down by the bank, but because of their specific industry area or business circumstances, there’s an alternative lender happy to help — and then hey presto, they’ve found funding, and their problems are solved.

In reality though, securing finance — whether it’s from a mainstream or alternative provider — is only the start of the story. When a small business gets the funding it was looking for, there are still decisions to be made. With a huge number of things you could actually spend the money on, how do you decide which type of growth is the right choice?

Here are some of the things you can achieve with alternative finance, which will hopefully serve as inspiration. The following ways to grow are fairly general, but variations of the below could apply to a wide range of companies. Which one is right for your business?

#1. Maximise your first location

Let’s start with the most obvious option — expanding your existing premises. This one really does apply to almost any business, whether you’re a software company or a café, and the principle is simple. If you increase the amount of space you have, you can also increase the amount of business you do.

For a business services company based in an office, a larger space allows you to hire more people and have all your employees under one roof — highly beneficial for a business that relies on intellectual property rather than tangible assets.

On the other hand, for hospitality businesses the effect of expanding the premises is more straightforward. Growth like adding more rooms to a hotel, more covers in a restaurant or creating a bigger kitchen for a busy takeaway will mean the amount of paying customers you can serve per hour is drastically increased.

For retailers, wholesalers, or any business that relies on keeping a warehouse full of goods, increasing the capacity of how much stock you can hold is also a really good way of maximising revenues — if your supply chain can’t keep up with demand, you need to get your hands on more stock and hold it in readiness for the next sale.

These increases in capacity can be great ways to grow the overall business, but be careful — in the short term, they will also increase your operating costs. If you’ve reinvested some of your working capital, cashflow will be more volatile because you won’t have as much margin for error; or if you’ve got a growth loan or another type of finance you’ll have to factor in repayments.

#2. Go forth and multiply

So far we’ve covered how you can grow your business by expanding your current premises, but once you’ve maximised your first location, in many industries the logical next step is acquiring new premises and doing business in multiple locations.

For example, if you’ve expanded your restaurant and it’s making a healthy profit, you’ll probably want to open another. Certainly for hospitality businesses like restaurants, bars and pubs, we’ve seen from high streets all over the UK that once you’ve found a model that works in one premises, the obvious thing to do is extend it to multiple locations.

For other industries, expanding in multiple locations has a different emphasis. For example, maybe your business relies on face-to-face meetings and there’s untapped potential in the next town over — in that case, a small ‘outpost’ office could help the main headquarters drive new business. On the other hand, a logistics firm might want a second warehouse to cut down on delivery times for a particular part of the country.

Whatever the new premises is for, there’s a range of alternative finance that can help with plans like this — for example, property finance that can help you buy the premises, or perhaps a growth loan over a shorter term to cover the startup costs. The crucial thing to remember (and plan for) is that it will take a while for your cashflow to catch up.

To use the hospitality example, if you were looking to open a new café you’d need to buy or rent the commercial property, decorate and shopfit so it looks the part, and then get hold of all the equipment you need (perhaps a coffee machine, panini press, oven, and refrigerator). Then of course there’s marketing costs to make sure people are aware of the new launch, hiring new staff, and paying suppliers for the ingredients you’ll need to actually sell to customers!

Even worse, all this has to be done before a single customer walks through the door — so it’s clear that cashflow is going to be a problem if you’re not careful. Luckily though, there’s a huge range of alternative finance that can help with these kinds of growth projects. If you can pull it off though, the next phase of growth is even more exciting.

#3. Take it global!

Finally, once your business has successfully expanded across various regions of the country, there’s one more frontier to tackle — international borders. Obviously this might make sense for some businesses and not others, but the general idea is that once you’re established in your local area, or even a few regions of the UK, you might consider taking your business international.

For companies with a focus on products, trade finance is a great way of using alternative finance to bridge a cashflow gap — trade financiers will fund the whole transaction from supplier to end purchaser, so you’re not left out of pocket while the invoices catch up. Alternatively, you might consider an asset-backed loan that you could use for expansion, based on the value of your current premises.

Where to?

We could go through the various permutations of business sectors, market conditions and business finance types all day — the bottom line is that whatever your business plan looks like, securing alternative finance is by no means the end of the process.

In fact, far from it. For many it’s just the start of a long and exciting journey. And who knows? Maybe your business’s journey will take you to the next town, the next county, or the next continent.

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Conrad Ford

Conrad Ford

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