What is alternative financing?

Business start-up in Spain, Finance Leave a comment   Published on par Jonatan Carbonell

We know that, when creating a strategy for your company, the economic part represents an indispensable factor for the growth of your business. Have you heard about alternative financing? In this article, we tell you what it is and its main advantages.

What is alternative financing?

Alternative financing refers to the possibility of opting for sources of financing other than traditional channels, consisting of markets and capital that do not involve the banking circuit.

In this sense, it is common that the resources you find to finance your company are direct investment in the capital of the project, or alternatives that complement traditional loans from banks.

Main sources of alternative financing

Currently, there are several alternative financing options that can be adapted to cover each stage that your business requires, whether it is starting up, maturing, or expanding. The following are the most common ones:

 

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Crowdlending

As its name indicates, this method is related to the crowdfunding concept, since it involves a large number of anonymous investors, with the difference that, in this case, the investment is made in exchange for its return with interest on the invested capital.

Likewise, it is through each small investor that it is possible to obtain massive financing, establishing in turn the interest that they will receive in return. In addition, the applicant business has the possibility of obtaining financing in an easier way than using traditional banking methods.

Factoring

If you want to obtain credit using your own invoices, factoring is the right alternative financing.

But how does it really work? Simple, the company must assign its invoices to a factoring company that will manage the collection of the same and, in turn, will deduct a series of commissions and interests that will be its profit for carrying out the procedure in question.

Business angels

Whether it is to relate to individuals or corporations, business angels function as a private investor who contribute money, knowledge and a network of contacts, with the main objective of benefiting from the business involved as they begin to thrive in the market.

They are related to the start-up phase, as they bet on success in the medium or long term, which makes this type of financing to be perceived as a kind of protective partner.

Private equity

When you apply for this type of financing, the investor will take over your company’s unlisted shares, which are in search of expansion and fundraising.

It is understood that these investors will provide financial resources, but will also make a professional contribution and participate in the company’s strategic decisions. Subsequently, the investment is monetized at the end of the term established to obtain the corresponding profits.

Venture capital

Also known as “venture capital”, it refers to business groups that usually finance startups with innovative business models in exchange for a percentage return.

In this sense, the risk assumed by the investor is to wait for the business to take off and generate economic benefits in order to pay him back. It is important to take into account that, in general, the first years are usually marked by a negative balance.

Direct lending

Companies benefit from institutional investors, usually in the form of debt, i.e. equity, or venture capital financing.

It is often used for large, well-established companies that wish to boost their international expansion.

Participating loans

As the name implies, this type of alternative financing involves investors who contribute capital to business units with the primary intention of obtaining a stake in their results.

These lenders are usually heavily involved with the business; therefore, establishing the economic guidelines and the contractual relationship will be essential in these cases.

 

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Advantages of alternative financing

However, if you still have doubts about the advantages that alternative financing can offer your business, here are 5 aspects that will surely capture your attention from now on:

Reduced costs

The procedures are usually carried out digitally, which reduces the cost of the process and avoids numerous intermediaries who obtain commissions that increase your costs in the long run.

Diversity of solutions

By not relying on traditional bank financing, your company can receive different forms of capital to meet its objectives and drive its growth.

You can also create long-lasting relationships and ties with investors who want to participate in the long term and get involved with your business, not to mention the possibility of sharing knowledge and advice that will benefit you on a business level.

Greater flexibility

In order to be eligible for a bank loan, it is necessary to comply with the established requirements and that your company has the right profile in the eyes of businessmen.

However, with the new modalities, although they must also maintain various criteria and agreements with investors, flexibility is a plus point that is increasingly appreciated by businesses today.

Speed in the processes

Taking into account that the procedures are carried out online, it is enough to fill out a form and send certain e-mails to contact potential investors for your business.

In short, the digital era translates into agility when it comes to financial procedures.

Proximity and personalized advice

Last but not least, the creation of new financing methods brings with it new professionals trained to guide you in the economic side of your business.

In addition, making agreements and meetings directly with the person or company willing to finance your project generates greater confidence when deciding on that ally that will accompany you to see your business grow, while you get a commensurate compensation.

 

You may also be interested in: Keys to increase the capital of your company

 

The new alternative sources of financing correspond to a way to optimize the desired results in today’s companies. Which of all the options studied best fits your business? Would you like to get financial advice? We have experts in the field at TAS Consulting! Click here and schedule your appointment.

 

Published on par Jonatan Carbonell

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