Alternative financing encompasses those financial sources that escape bank operations. Thanks to the appearance of new agents that provide access to funds solutions, companies gain in versatility and increase their financing possibilities.
In this article we explain the situation this industry is in and what are the prospects for the coming years. We will also discuss the alternative sources of financing that you have at your disposal and their advantages.
How is the alternative financing market?
The non-bank financing market began to consolidate as a result of the liquidity vacuum left by the banks after the 2008 crisis.
According to the report Alternative Lender Deal Tracker Spring 2022, created by Deloitte, 2021 was the most active year in terms of direct loans since this prestigious consultancy began tracking private debt deals.
The United Kingdom remains the main player in terms of this type of alternative financing for companies, but in continental Europe it continues to gain popularity. Direct lending transactions also increased in Spain, but it is less developed compared to countries like Germany or the United States.
There are several factors that suggest that the alternative financing will grow in the coming years. The first of these is the economic slowdown that the health pandemic has left behind, added to the strong path that Spain has in this field and the fact that we can find sectors not covered by the banking system.
The lack of liquidity, plus the difficulties posed by the banking system, are leading companies of all sizes to diversify your financial sources. In short, the alternative financing market continues to develop in Spain and Europe.
Alternative types and sources of financing
Alternative financing sources can cover practically all of the financial needs of companies. In fact, large companies take into consideration all kinds of sources and financial products that they have at their disposal, both banking and non-banking.
However, SMEs also have these resources and are able to access a wide range of non-bank financing formulas and mechanisms:
- Leasing: Useful for acquiring fixed assets.
- Renting: leasing of assets to maintain operations.
- Bridge Loans for Developers:in the case of developers of real estate projects that only have land.
- Debt Funds: also called direct lending. These are investment funds that build their portfolios with loans to companies.
- Factoring: designed to manage collections and avoid liquidity gaps.
- Confirming: It is also a short-term financial solution, but in this case it consists of managing payments to suppliers.
- Mutual Guarantee Societies: They facilitate access to credit by providing a guarantee.
- Crowdfunding: allows new projects to be undertaken through collective financing.
- Crowdlending: loans from individuals.
- Public Funding Sources.
- Export Financing.
- Stock Financing.
Advantages of alternative financing
The first and main advantage of non-bank financing is the diversification of sources that companies can reach.
Counting only with the support of a bank, creates a dependency on a provider of financial services with greater bargaining power; the company must adapt to its procedures and conditions.
In this aspect, it would be advisable to maintain several providers of financial products and services specialized in sophisticated tools adapted to the real needs of the company. Negotiation capacity increases, as do the financing possibilities.
Besides, the banking system has a large bureaucracy and is slow when managing and approving operations. It does not have enough agility when required short term solutions, usually related to treasury.
Meanwhile, the structures of agents dedicated to offering alternative sources of financing tend to be more flexible, providing a quick and appropriate response to the specific situation.
Also, as its name suggests, alternative financing can act as a complement to the traditional system. They are not exclusive of each other.
If you want more information about what possibilities your company can have with the different alternative financing products, please contact contact us. Our specialized consultants analyze your situation and advise you on the best solution.