A Guide to Alternative Finance – A New Form of Business Funding

Changing Your Perspective

Albert Einstein once said “In moments of crisis, only the imagination is more important than knowledge”. Generally, crises are almost always viewed as something negative or an event that we should always try to avoid. However, it is so important that we also look at the positive side of incidents as such. Alternative finance is an innovative way of increasing investment by turning the seemingly negative into something positive. 

Financial services for companies are a great example of this since they have been recently reinvented and changed in a positive way. During the past few years, funding agencies have been started with the aim of taking advantage of the lack of banking and financial services available for companies seeking new ways to attract private investors.

These new ways of financing a company are commonly known as methods of alternative finance. 

How has Alternative Finance changed the market?

In recent years, Spain has experienced a tremendous growth in terms of alternative finance, pushing the banks aside. According to a study conducted by the University of Cambridge called ‘The Movin Mainstream. The European Alternative Finance Benchmarking Report’, alternative finance in Spain has grown by 114% from 2012 to 2014 and by 152% in 2015. Currently the market has stabilized and an annual growth rate of 7% is expected, at least for the following 4 years.

What are the main methods of Alternative Finance?

In Spain, the most well known and used method of alternative financing are those funded by the “crowd” (collective).

This method involves an individual making their ideas or their capital available to companies and in return, they receive monetary consideration.

“Crowd” Methods

There are 3 models of “crowd” alternative financing:

• Crowdfunding
• Crowdinvesting
• Crowdlending

The last one, crowdlending, is based on loans given to businesses and is really on the rise.

The first one,  crowdfunding, aims to share and divide the financing of a project amongst those who choose to support it.

Crowdinvesting, on the other hand, sees investors acquiring a stake in a company. This means that the investor’s yield really does depend on the success of the company itself: investors normally share the profits that are made as well as any added value but they do simultaneously carry the risk of a total loss.

Despite this, crowdlending is without a doubt the most popular form of alternative finance at the moment. This financial model is truly on the rise in Spain. It enables direct funding from the financial community without resorting to any services provided by the bank.

So, taking into consideration what Einstein said, a crisis should only help us to come up with innovative ideas by using our imagination. Thanks to the innovative idea of alternative finance it could be said that, now more than ever, starting your own businesst has never been easier. If you are considering starting your own company – do it – and remember to consider using alternative finance methods.