Bank rejection isn't the end. It's often the beginning of finding better finance.
We hear this story weekly: A profitable business with 15 years of trading history applies to their bank for working capital. The bank they've banked with since day one. Three weeks later, they receive a decline. No detailed explanation. No alternative suggested. Just no.
Here's what most business owners don't realise: Banks decline the majority of business loan applications. In 2024, high street banks approved less than 35% of SME loan requests. This isn't a reflection on your business. It's a reflection of how banks operate.
This guide shows you the alternative finance options that exist beyond traditional banking. There are over 300 specialist lenders in the UK who fund exactly what banks won't. Different criteria, different appetites, different solutions.
Why Banks Say No (Even to Good Businesses)
Understanding why banks decline helps you position your application better with alternative lenders. Here's the reality: most bank declines have nothing to do with your business quality.
Sector Restrictions
Many banks have complete bans on entire sectors, regardless of business performance. Hospitality, construction, retail, and professional services often face automatic declines based purely on sector classification.
A construction company with £5 million turnover and 20 years trading might be declined purely because the bank has decided construction is too risky this quarter. The decision has nothing to do with your specific business.
Age of Business
Most high street banks want 2 to 3 years of trading history minimum. Some want 5 years. If your business is newer, you're declined automatically regardless of growth trajectory or founder experience.
Turnover Thresholds
Many banks have minimum turnover requirements (typically £500,000 to £1 million). Below this threshold, you're too small for their commercial banking division but too large for their small business products. You fall between two stools and get declined by both.
Property Security Requirements
Traditional banks strongly prefer lending secured against property. If you don't own commercial or residential property to offer as security, many bank products become unavailable. Your business assets (stock, debtors, equipment) don't count as acceptable security for most bank lending.
Complexity
Anything that doesn't fit the bank's standard template triggers a decline. Seasonal businesses, companies with lumpy revenue, complex group structures, businesses with international operations, companies making acquisitions – all get declined because they don't fit neat automated credit scoring.
Bank's Own Risk Appetite
Bank lending criteria change quarterly based on their internal targets and regulatory capital requirements. A business declined in March might be approved in July when the bank has changed its appetite. This has nothing to do with your business changing.
The Real Story: Automated Credit Scoring
Banks use automated credit scoring models. Each model has hard parameters. One variable outside those parameters triggers an automatic decline. A human might see your business is strong despite that one variable. The algorithm doesn't. It's not personal. It's mathematical.
Alternative Finance Options: The Complete Guide
Alternative finance is a broad category covering everything from asset based lending to venture capital. Here's what's actually available, who each option suits, and what it costs.
1. Asset Based Lending
Invoice Finance / Factoring
You borrow against your sales ledger. As you invoice customers, the lender advances you 70% to 90% of invoice value immediately. When your customer pays, the lender releases the balance minus their fee.
Best for:
- B2B businesses with 30 to 90 day payment terms
- Growing companies constrained by cash flow not profitability
- Businesses with strong customers who pay reliably
Costs:
1% to 3% of invoice value plus interest on drawn funds (typically 2% to 6% above base rate)
Timeline:
1 to 2 weeks to arrange
Asset Refinance (Vehicles, Machinery, Equipment)
You release capital from assets you already own. Lender provides a loan secured against the equipment. You keep using the assets while repaying the loan over time.
Best for:
- Asset heavy businesses (construction, logistics, manufacturing)
- Companies with owned equipment worth £50,000+
- Businesses needing working capital without property security
Costs:
6% to 12% per year, depending on asset type and business profile
Advance rates:
60% to 80% of asset value
Stock Finance
Borrowing against inventory. Lender advances funds against stock value, you repay as stock sells. Useful for businesses with high value stock that turns slowly.
Best for:
- Importers with container loads of stock
- Wholesalers and distributors
- Retailers with seasonal stock patterns
Advance rates:
50% to 70% of stock value (lower for slow moving or perishable stock)
2. Property Backed Finance
Commercial Mortgages (Non Bank Lenders)
If you own commercial property or are buying commercial premises, specialist commercial lenders offer mortgages when banks decline. More flexible criteria, faster decisions.
Best for:
- Buying business premises
- Refinancing existing commercial property to release capital
- Consolidating business debts using property as security
Costs:
4% to 8% per year, 5 to 25 year terms
Bridging Loans
Short term property backed finance (3 to 18 months). If you own residential or commercial property, you can release capital quickly through bridging. Use for working capital, acquisitions, or urgent business needs.
Best for:
- Urgent funding requirements (funds within 2 weeks)
- Temporary capital needs with clear repayment route
- Buying business premises at auction
Costs:
0.55% to 1.5% per month
Development Finance
For property developers or businesses undertaking major property projects. Provides land purchase and build costs with staged releases tied to construction progress.
3. Cash Flow Finance
Revenue Based Finance
You receive a lump sum now and repay through a percentage of future revenue. No fixed monthly payments. Repayment flexes with your income.
Best for:
- SaaS and subscription businesses with recurring revenue
- Ecommerce businesses with consistent sales
- Service businesses with predictable monthly income
Costs:
Effective APR of 15% to 40% depending on repayment period
Typical structure:
Borrow £100,000, repay £115,000 to £125,000 through 8% to 12% of monthly revenue
Merchant Cash Advances
Similar to revenue based finance but repayment comes directly from card terminal receipts. Fast funding (often 3 to 5 days) but expensive.
Best for:
- Retail and hospitality businesses with high card transaction volumes
- Emergency funding when speed is critical
- Businesses that cannot access other finance
Warning:
MCAs are expensive (effective APRs often 40% to 80%). Only use when no better option exists and the business opportunity justifies the cost.
4. Growth and Acquisition Finance
Private Debt / Credit Funds
Institutional lenders providing flexible debt for established businesses. Higher amounts (typically £1 million to £50 million), longer terms, and more flexible structures than traditional banking.
Best for:
- Established businesses (£2 million+ turnover)
- Management buyouts and acquisitions
- Funding growth without diluting equity
- Refinancing existing debt on better terms
Costs:
8% to 15% per year, 3 to 7 year terms
Mezzanine Finance
Subordinated debt that sits between senior debt and equity. Higher risk for lender means higher cost for you, but provides capital when senior lenders cap out.
Best for:
- Large acquisitions needing leverage beyond senior debt limits
- Property development projects requiring extra capital
- Refinancing where senior debt alone is insufficient
Costs:
12% to 20% per year plus potential equity warrants
Venture Debt
Debt specifically designed for venture backed startups. Extends runway without dilution.
Best for:
- Startups that have raised equity funding
- High growth companies needing runway extension
- Companies wanting to reach milestones before next equity raise
Typical structure:
20% to 40% of last equity round, 3 to 4 year term, 10% to 15% interest plus warrants
5. Equity Finance
Angel Investors
High net worth individuals investing their own money in early stage businesses. Not debt, so no repayment obligation, but you're selling ownership.
Best for:
- Startups and early stage businesses
- Businesses with high growth potential
- Companies needing strategic expertise along with capital
Typical investment:
£25,000 to £500,000 for 10% to 25% equity
Private Equity
Institutional investors taking significant stakes (often majority) in established businesses. Bring capital, expertise, and exit focus.
Best for:
- Established profitable businesses (typically £1 million+ EBITDA)
- Management buyouts
- Owners seeking partial or full exit
- Businesses needing transformation capital and expertise
Typical investment:
£2 million to £100 million+ for 30% to 100% of equity
| Finance Type | Best For | Typical Cost | Speed | Security Needed |
|---|---|---|---|---|
| Invoice Finance | B2B with debtors | 1-3% + interest | 1-2 weeks | Sales ledger |
| Asset Refinance | Asset heavy businesses | 6-12% pa | 2-3 weeks | Equipment/vehicles |
| Bridging Loan | Property owners | 0.55-1.5% pm | 1-3 weeks | Property |
| Revenue Based | Recurring revenue | 15-40% APR | 3-7 days | Revenue stream |
| Private Debt | Established businesses | 8-15% pa | 4-8 weeks | Business assets |
| Mezzanine | Large transactions | 12-20% pa | 6-10 weeks | Subordinated |
| Equity | High growth | Equity dilution | 8-16 weeks | None |
How Alternative Lenders Think Differently
Understanding the mindset difference between banks and alternative lenders helps you position your application effectively.
The Fundamental Difference
Banks ask: "Does this fit our criteria?"
Alternative lenders ask: "Can we make this work?"
What Alternative Lenders Care About
- The specific transaction or purpose (what exactly do you need the money for?)
- The exit or repayment route (how will you repay this?)
- The underlying assets or cash flows (what security or income supports this?)
- The story behind the numbers (why did the bank decline, what's your plan?)
What They Care Less About
- Perfect credit history (adverse credit is manageable if explained)
- Textbook financial ratios (they understand business reality is messier)
- Fitting a standard template (flexibility is their competitive advantage)
- Length of trading history (they'll back good propositions from newer businesses)
This doesn't mean alternative lenders are reckless or easy. It means they assess risk differently and price accordingly. What banks see as "too risky at any price," alternative lenders see as "higher risk, therefore higher price."
Red Flags: How to Spot Bad Alternative Lenders
Most alternative lenders are legitimate, regulated, and professional. But the sector does attract some operators you should avoid. Here's how to protect yourself.
Warning Signs
- Upfront fees before approval (legitimate lenders charge arrangement fees on completion)
- Pressure to sign immediately ("this rate is only available today")
- Unusually low rates that seem too good to be true (they are)
- No physical address or unclear company information
- Unwilling to explain all costs clearly in writing
- No FCA registration when required (check the FCA register)
- Asking for money to "secure the funds" or "hold the rate"
How to Verify Legitimacy
- Check FCA register if the lender should be regulated (most consumer lending must be)
- Ask for full cost breakdown in writing before committing
- Google the company name plus "reviews" or "complaints"
- Request the facility letter and have your accountant or solicitor review
- Verify the company exists at Companies House
- If using a broker, check they're authorised (FCA register or relevant trade body)
What You Can Do After Bank Rejection
Immediate practical steps to take when your bank application is declined:
Step 1: Get the Specific Reason
You're entitled to know why you were declined. Ask for the specific reason, not generic "doesn't meet our criteria" response. Understanding the actual issue helps you address it with alternative lenders.
Step 2: Review Your Financials
Look at your application objectively. Are there obvious issues you can address? Late filed accounts, unexplained losses, cash flow concerns that need explanation?
Step 3: Consider Timing
Could you reapply to banks in 6 months with improved financials? Sometimes delay is better than expensive alternative finance. But if you need funds now, delay isn't an option.
Step 4: Assess Urgency
Do you need funds within 2 weeks (bridging, invoice finance), 4 weeks (most alternatives), or can you wait 3 months (potentially retry banks with improved position)?
Step 5: Speak to a Specialist Broker
A broker who specialises in alternative finance knows which lenders fund which situations. You'll save weeks of trial and error and avoid multiple declined applications damaging your credit file.
The Case for Using a Finance Broker
After bank rejection, professional advice becomes even more valuable. Here's why:
Know Which Lenders Fund Your Situation
There are 300+ alternative lenders in the UK. Each has different criteria, appetites, and specialisms. A broker knows which 5 to 10 lenders are worth approaching for your specific situation. Going direct means guessing and wasting time on wrong applications.
Present Your Case Optimally
How you present matters enormously. A broker knows what each lender cares about and how to position your application to maximise approval chances. We've seen the same business declined when applying direct, then approved when we repackage and represent it.
Avoid Multiple Declined Applications
Each application you make creates a credit footprint. Multiple declines look bad and reduce your chances with subsequent lenders. A broker targets the right lender first time or submits to multiple lenders simultaneously through one process.
Negotiate Better Terms
Lenders compete for broker business. A broker arranging £50 million of deals annually has negotiating power you don't have as a one off applicant. This typically translates to 1% to 3% better rates or improved terms.
Cost
Many specialist brokers charge success fees only (1% to 2% of facility on completion, nothing upfront). Some charge no fee at all if the lender pays commission. Either way, the cost is typically less than the value delivered through better rates and saved time.
Frequently Asked Questions
Rejected by the Bank? Let's Find You an Alternative
We work with businesses every week who've been turned down by traditional lenders. Honest conversation about what's actually achievable, no obligation, no pressure.