Are traditional, online, or alternative small business loans right for your business?

9 May 2024

Find out what types of lenders offer small business loans and how traditional lending differs from online lending and alternative financing.

How to write a business plan for a loan

As a small business owner, do you know what financing options are available to you?

In a 2023 British Business Bank survey of 725 financial intermediaries, 75% agreed that SMEs are not well informed about alternative finance and early-stage equity. 

Different types of lenders can help you find suitable financing solutions for your growing business – the key is finding the lender that aligns most with your needs.

What types of lenders offer small business loans?

Small business loans can come in many shapes and sizes, as can the lenders who offer them.

Several types of lenders offer small business loans, including:

  • Traditional banks: A traditional bank typically requires collateral when lending to a small business. Additionally, a good credit history and a detailed business continuity plan can help you in securing lending from a traditional banking institution. 

  • Online lenders: Online lenders, including fintech companies, offer small business loans with streamlined application processes and quick funding. These lenders can sometimes cater to businesses with lower credit and in need of fast access to capital. 

  • Government programs: In some regions, government agencies offer lending solutions to small businesses. In the UK, for example, the government-backed Start Up Loan program helps new businesses gain stable financial footing in their early stages of growth. 

Each type of lender has its own eligibility requirements, terms, risks, and application processes, making it important to compare your options before selecting a lender. 

What’s the difference between traditional banks and online lenders?

Traditional banks and online lenders have distinct approaches to lending. 

A traditional bank is an established institution with physical branches that can offer a wide range of lending products. These banks typically follow stringent lending criteria and often require hefty collateral to secure a loan when lending to small businesses.

Comparatively, online lenders operate through digital platforms, providing quick access to loans and working capital. Online lenders leverage technology as a primary tool for the credit assessment processes, allowing them to offer flexible terms based on the specific circumstances of the borrower. 

However, while online lenders may offer greater flexibility and personalisation, they also come with a higher perceived risk. In turn, interest rates can sometimes inflate when borrowing from online lenders. 

What is alternative financing?

Online lenders have paved the way for many new forms of alternative financing solutions.

Alternative financing encompasses a variety of non-traditional options such as peer-to-peer lending, crowdfunding, and merchant cash advances. 

These sources offer innovative funding solutions outside the conventional banking system. For example, peer-to-peer lending platforms connect borrowers directly with investors, while crowdfunding platforms enable individuals to raise capital from a large pool of contributors. Meanwhile, merchant cash advances provide businesses with upfront cash in exchange for a percentage of future sales.

Overall, while traditional banks prioritise stability and comprehensive services, online lenders and alternative financing offer speed, flexibility, and accessibility. 

Funding Options by Tide helps you find financing for your small business

Funding Options by Tide connects small businesses in the UK with more than 120 lenders, helping you find suitable financing terms for your business needs. 

Get started with Funding Options by Tide.

Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business and personal credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

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