How to find alternative financing to banks
Looking for financing is no longer synonymous with going to the bank. Nowadays, there are a wide range of other options that can be an alternative and that need to be known.
Ignorance about the existence of credit providers other than banks is still the main obstacle: only one in three businesses is aware of the existence of Fintech or digital financing platforms, and only 20% say they have used them. This data is taken from the fintech and alternative financing business barometer, created by the Institut d’Estudis Financers (IEF) in collaboration with Altria Corpo and presented on 2 February.
According to the same survey, 40% of businesses believe that access to banking credit has tightened in the last 12 months and, even so, 50% believe that they will need access to it in the next 12 months. One of its drivers and attractions is therefore easier accessibility than banks. Its costs are also realistic: the interest rates are usually in line with the market, so as to be competitive, and at the same time, there are no surprises or unexpectedly high interest rates.
But what are these “other forms of financing”?
Businesses that are already using them opt mainly for factoring, renting and leasing (representing 25% of the total). Other options such as crowdlending or crowdfunding are more common in the start-up world. But let’s find out what is behind these terms:
- Factoring is used by businesses to advance collections: as simple as the provider of this service will pay us in cash for the invoice we have pending with a client (on credit) and will take care of the subsequent management. We will be subject to interest and, possibly, a commission of the costs. There are various types, depending on the assumption of the risk of non-payment. We should also mention confirming, the reverse option, where the supplier assumes the payment of invoices and converts them into credit.
- Renting allows the rental of movable assets, such as vehicles, office or computer equipment, for periods of more than one year. Fixed instalments will be established as payment, which often include maintenance, insurance, etc. We will enjoy a new asset in perfect condition, without having to make a significant initial outlay. The main difference with leasing is that, in this case, it incorporates a purchase option at the end of the contract.
- Crowdlending is a form of lending by investors, with a low-interest return, without the need to go to the bank. We can find providers such as Ecrowd!, dedicated especially to technology projects, which offer this financing option.
- Crowdfunding, widely used in start-ups, is based on obtaining the interest of other people in our project and raising funds in exchange for offering an advantage or privilege later; very oriented to product launches, preference or discount on the purchase could be an example of consideration. It will be fairly easy to find many crowdfunding platforms to get started.
- Investments of a more professional nature are known as crowdinvesting or business angels, where funding is received from companies or players in the sector and who will usually ask for a percentage of future profits in return.
As we have seen, the orientation of alternative financing to banks tends to be towards investment in business projects rather than individuals, although options such as renting or leasing can be useful in the latter case, if we think for example in the case of a salesperson who wants to enjoy a vehicle without the high costs of wear and tear and the purchase of a new one every few years. In both cases, we must not forget or rule out public financing through subsidies or grants, such as those offered by the Generalitat, city councils, such as Barcelona’s, or the Chambers of Commerce. Many of these grants have been created or increased specifically to alleviate the negative effects of the pandemic, and you just have to keep an eye on the different calls for applications.