Blog.

6 benefits of alternative financing for companies

Blog
13 September 2022
5 benefits of alternative financing for companies

If a hard-nosed reporter stops people on the street, microphone in hand, and asks them what the main objective of a company is, the overwhelming majority of those interviewed will likely answer "to make money". The truth is that for a company to make money, it must also be able to spend it. After all, raw materials, contracts, taxes, and electricity do not pay for themselves. This is where alternative financing comes in, a set of mechanisms beyond the traditional financial sector. The benefits of alternative financing for companies range from obtaining short-term liquidity to broadening the range of financial products available to them.

The emergence and expansion of alternative financing complement traditional bank-based financing and helps companies and the self-employed to adapt more easily to today's fast-paced environment.

After all, a 21st-century company cannot finance itself like a 20th-century organization. Neither its liquidity needs nor the speed of change and transformation is the same as those of the pre-digital era.

In the following, we will briefly analyze 6 benefits of alternative financing for companies.

1. It does not consume CIRBE

Perhaps the greatest benefit of alternative financing for companies is that it does not consume CIRBE. But what is the CIRBE? With these five letters we refer to the Central Information Office of the Bank of Spain.

All the banks operating in our country have to report all the financing and credit operations of their clients to this central.

So, when a bank studies a request for financing from a certain company, it first goes to the CIRBE. Why? To find out if the company has already contracted financial services with other banks. In such a way that the CIRBE becomes the first source of information for banks when it comes to establishing a customer's rating. This rating is key since it marks the ceiling of financing or credit that the bank will grant to the applicant company.

In contrast to this approach, alternative financing models operate outside the banking system. This means that they do not report to the Bank of Spain. In other words, the debt generated by obtaining liquidity through alternative financing does not exist for the banking system. What does this mean? That companies will have at their disposal a good asset when negotiating conditions and new financing with the bank, because the services of alternative financing will not be taken into account when establishing their rating.

 

2. Diversification of financing channels

Every business project needs to obtain financing at some point. On many occasions because only through this can it grow and consolidate itself in an increasingly competitive and voracious market. For example, if an SME has been increasing its turnover and needs to change its facilities to larger ones that are better suited to its interests, it is highly unlikely that it will have sufficient liquidity to acquire its new headquarters. Therefore, in the analog era, it was very likely that you would have to resort to taking out a loan or mortgage with a bank. Today, on the other hand, you have more alternatives.

With this example, we only want to highlight one of the most important benefits of alternative financing for companies: the diversification of financing channels.

Thanks to digitalization and the extraordinary technological development we have experienced in recent decades, a business can be financed not only through banks but also through other channels such as crowdlending, crowdfactoring, or crowdequity.

The very notion of the crowd gives us clues as to where this is headed. In contrast to the classic bank financier, we find a crowd of investors willing to see their savings grow, while at the same time supporting companies in the real economy to continue their growth.

Does this mean that banks are a thing of the past? No, the benefits of alternative financing do not involve the replacement of traditional financing, but rather the expansion of existing avenues. In a scenario of bank concentration, diversification is more complex, which is why alternative financing is key when designing a company's financial pool.

3. Increasing the type of services and access to existing products that banks do not offer to some companies

Alternative financing not only serves to diversify the type of players offering to finance to companies. It also broadens the types of existing financial products and their characteristics.

For example, a startup that is in the financing phase can contract a bank financial product, but it can also receive financing from venture capital or business angel. Or opt for crowdequity.

The same is true for any type of business, regardless of its sector or the type of activities it carries out.

Even when the products are similar, as in the case of factoring or lending. Bank loans do not work in the same way, nor do they have the same characteristics or the same terms as the products of a crowdlending platform. Or the factoring offered by traditional financial institutions and crowdfactoring.

By expanding the catalog of financial services and products, it is easier for businesses to detect and access products that meet their financing needs and the characteristics of the company in question.

Alternative financing models also allow certain businesses to access financing services that are already available from banks but which, however, are not offered to certain companies due to their type or characteristics. For example, if the company is newly created or its customers are not large. On the other hand, with alternative financing, these businesses can have access to these services.

5 benefits of alternative financing for companies

4. More facilities for obtaining financing

Another benefit of alternative financing for companies is the increase in the ease and speed of obtaining financing.

In contrast to the rigidity of the processes and protocols of banking entities, crowdlending or crowdfactoring platforms are capable, thanks to digitalization and the development of advanced solutions, of assessing the viability of an operation and establishing its rating in just a couple of days. In the case of Inversa Invoice Market, moreover, without requiring collateral or guarantees to finance invoices. All this implies:

  1. Reduction of bureaucracy when requesting financing.
  2. Streamlining of all procedures.
  3. Reduction of the requirements to contract a financial product.
  4. Obtaining financing in a very short period.

Thus, one of the most outstanding benefits of alternative financing for companies is its capacity to help all kinds of businesses to obtain financing as soon as possible, always safeguarding the interests of both investors and companies.

5. Short-term liquidity guarantee

As we pointed out in the previous section, one of the most attractive benefits of alternative financing for businesses is that through these mechanisms the time for obtaining money is reduced compared to traditional financing products.

Companies cannot always foresee their liquidity needs far in advance. There are strategic issues that are planned for the medium or long term, but there are also short-term opportunities or drawbacks that need to be addressed.

For example, a company may suddenly accumulate many uncollected invoices, which has an extraordinary impact on its accounts and its budget balance, since the expenses it has to face remain stable. Well, in a matter of days you can upload some of these invoices to a crowdfactoring platform and get them financed.

Let's imagine another situation. A company is offered to acquire an investment asset that can add great value to the services it provides. However, it lacks the necessary liquidity to afford such an acquisition. Using a direct loan through crowdlending, it can obtain the necessary financing before the offer expires.

The ability of businesses to adapt to changing economic and social circumstances is today more than ever, one of the keys to the success of any business project. Therefore, it is of vital importance that companies have at their disposal extremely agile financing mechanisms that guarantee the obtaining of liquidity in the short term.

6. A la carte financing: Tailoring products to business needs

Undoubtedly, when talking about the benefits of alternative financing for companies, it is essential to highlight the fact that the new mechanisms and platforms have not only opened up the range of financial products available but that, thanks to their flexibility, they can be easily adapted to the needs of businesses.

If we usually say that each person is different, the same can be said about companies. Each business is different from the others. After all, an infinite number of factors come into play in its configuration. Therefore, a financial product that fits the needs of one business may not serve to meet the needs of another.

Crowdlending or crowdfactoring platforms such as Inversa Invoice Market offer solutions that adapt to what companies need at any given moment. Answering their needs as soon as possible and offering the maximum guarantees both to the businesses and to the people who are going to invest in them.

In short, when addressing the benefits of alternative financing for companies, it is essential to highlight how this new way of providing liquidity to companies and helping investors to take advantage of their savings has transformed the way businesses are financed, helping them to adapt to today's accelerated pace and providing them with the necessary tools to consolidate.

Alternative Financing benefits companies ethical investment FinTech
Inversa Team
Inversa Team

If you would like to contribute to Inversa's Blog as an expert, become a knowledge partner.

Sign in