5 forms of financing for companies

The funding for companies has changed in recent years because there has been a boom in non – bank alternatives. We give you more details about the new possibilities.

Financing for companies: alternative forms of financing

The forms of alternative financing have multiplied and today traditional systems coexist with other novel formulas. The reasons for this increase in non-bank financing have been twofold.

The first, the consequences of the 2008 Economic Crisis in relation to bank financing. Many financial entities restricted credit to companies that were solvent or to projects based. The result is that other financing methods increased, some of them already old.

Second, the emergence of so-called fintech companies that offer financing through the network has been important. The existence of the internet allows companies and investors to be contacted without the need for intermediaries

Do you want to know better the financing possibilities for your company? We are going to review the forms of non-bank financing for profit:

Crowdlending

The crowdlending has become long, in the alternative main non – bank financing. This system essentially consists of loans offered by private users to a company in exchange for receiving interest that is usually higher than what a fixed term offers. This type of financing is also called P2P.

Crowdlending can be used to launch a company but also when you have specific financing needs. This is useful when the financial institution does not grant the loan. If you have a specific need for financing, this alternative may interest you.

Official Credit Institute (ICO)

The Official Credit Institute (ICO) is the main public body that finances business projects. Some Autonomous Communities have similar bodies.

The main benefit of ICO credits is that they have a lower interest than that of financial institutions. Of course, the project must be accredited. The truth is that this is an interesting alternative because the agency has already financed more than 900,000 companies. If you are clear about the project and can present a plan, you can consider this option.

It is important that we remind you that the ICO, unlike other formulas, has existed for several decades.

alternative financing

Participative loans

The participative loan, unlike other formulas, is subject to the profits of the company. This implies that, in case of profits, the interest will be higher but, if there are losses, the lender could face negative interest. We are not going to deny that, for the lender, there is a potential risk that does not exist in other possibilities.

This type of loan, although not so common, is regulated by legislation. It is a good option for projects that are starting their journey (startups). Typically, this option is assumed by venture capital funds.

Issuance of debt or promissory notes

The issuance of debt or promissory notes is a classic of large companies. This system consists of guaranteeing the payment of the amount that is lent plus an interest with a certain maturity. The interests are usually higher than those offered in the public debt market.

The issuance of debt or promissory notes is often used to pay for projects or to meet short-term capital needs. The usual thing is that large companies make this type of emissions with some frequency. It is thus a financing option for companies that has been used and is being used. This is one of the possibilities that small investors have to make profitable savings or seek security.

What happens with this system is that only large companies can do it because they are the ones that generate confidence in small investors. It is also important to note that this method is regulated by the National Securities Market Commission (CMNV).

Alternative Stock Market (MAB)

The Alternative Stock Market (MAB) is another of the financing options for companies that exist. It basically consists of the access of SMEs to the stock market. This is an interesting financing alternative for companies already in operation that can accredit certain data to the CNMV.

The main advantage of this method is that there is easy access to funding and public. However, it must be borne in mind that the demand for transparency is much higher.

Bandenia Challenger Bank, Letter of Credit Providers in Dubai.