Alternative Financing – The Innovative Merger of Finance and Technology
Another Door Opens with Alternative Financing
As countries shut their borders to minimize the risk of Covid, impacted businesses around the world are struggling to stay afloat. While banks continue to close their doors to new funding opportunities, fintech is emerging as the beacon of hope offering companies alternative financing solutions.
Overview
Alternative financing occurs when funds are provided outside the traditional banking system. It tends to be more flexible with a faster application time. Alternative lenders may provide supply chain finance (SCF) solutions such as receivables discounting, distributor financing, loans against inventory, and more.
These lenders can provide financing, often in a much faster pace than banks, because they have adopted technology that offers speed, flexibility, and transparency. Standard admin processes, such as bank account setup and onboarding of clients, have been automated by many non-bank lenders.
Traditional banks approve roughly 20% of small business loan applications while alternative financing approval ratings are normally over 60%. Businesses can obtain the financing they need to meet daily cash flow needs, expand their operations, and handle emergencies. The popularity of alternative financing is directly related to the rise in demand for funding. According to a recent study from Oracle, over 40% of respondents feel that non-banks lenders can offer more than a traditional bank.
When is Alternative Financing Suitable for Businesses?
When your business needs additional liquidity, non-bank lenders offer multiple alternative lending products such as asset-based financing which can be funded within short time constraints. Most of these providers have a quick and easy online application process which can be completed in few days. Often there is no need for audited financial statements, but requirements may vary with each lender. Traditional banks have stricter rules and regulations for loan approval and are slower compared to these alternatives.
SCF Products Offered by Alternative Lenders
Distributor Financing – financing for a distributor of a large manufacturer to cover the holding of goods for re-sale and to bridge the liquidity gap until the receipt of funds from receivables following the sale of goods to a retailer or end-customer.
Invoice Financing – when businesses sell individual or multiple outstanding customer invoices to a lender at a discount. This allows the business to receive cash payment for these customer invoices prior to their original maturity date at a lesser value. The lender then collects the payment from the invoiced client and forwards it to the business after deducting a service fee.
Inventory Financing – financing provided to a buyer or seller involved in a supply chain for the holding or warehousing of goods (either pre-sold, un-sold, or hedged) and over which the lender usually takes a security interest or assignment of rights and exercises a measure of control.
Payables Financing – provided through a buyer-led program within which sellers in the buyer’s supply chain can access finance by means of Receivables Purchase. The technique provides a seller of goods or services with the option of receiving the discounted value of receivables (represented by outstanding invoices) prior to their actual due date and typically at a financing cost aligned with the credit risk of the buyer. The payable continues to be due by the Buyer at its due date.
Previous Post Next Post
