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Alternative Means of Financing, opportunity for the companies

Alternative Means of Financing, opportunity for the companies Publicado: 28-02-2024

What are the Alternative Means of Financing? 

Alternative Financing refers to the possibility of getting credit or financing from different sources than the banking system, which traditionally offers services such as loan agreements, current account agreements, or mortgages. This kind of financing operates through other subjects than the banking system, who are engaged in the provision of financial services or intermediation between individuals for financing purposes. 

The concept of Alternative Financing is conformed through diverse sources of capital raising and investment, different and independent from the traditional or better-known credit means.

What are the advantages of Alternative Financing? 

The main advantage of using Alternative Financing is conformed through diverse source of capital raising and investment, different and independent from the traditional or better-known credit means. 

What are the advantages of Alternative Financing? 

The main advantage of using Alternative Financing is greater accessibility to financing mechanisms for individuals and entrepreneurs compared to traditional credit system, due to the requirements and procedures that must be fulfilled to obtain financing.

Other advantages include: 

  • Quickness, due to the adaptability of Alternative Financing entities to the circumstances of each case at the time of consideration and decision-making, not forgetting the technological incorporation into credit evaluation processes.
  • Greater flexibility because when Alternative Financing means are used, those who have to grant the credits take into consideration the specificities, time needs, and credit conditions that are really useful and affordable for the applicant.

These factors are crucial when seeking financing for companies, which is why the various types of alternative financing are becoming widely popular, as they represent greater credit facilities for entrepreneurs. 

In summary, people go to Alternative Financing seeking custom-made credit possibilities, allowing users to obtain financing in a more agile, dynamic way, and with credit conditions more favorable than those traditionally offered.

Which are the main types of Alternative Financing? 

Alternative Financing represents many diverse credit possibilities because entities adapt, modify, and create new service offers, always addressing the needs of their clients. The following represent the main types of these means: 

  • Venture Capital 

It is a type of Risk Capital investment that consists of a company receiving financing from industrial groups or corporations with the aim of growing itself into the market, in exchange for a percentage of shares in the company.

It mainly differs from Equity Crowdfunding, in the long-term nature of the investment, as in Venture Capital, the investor`s primary intention is to sell their shares when they turn in their best value. 

  • Crowdlending

This type of Alternative Financing consists of the formation of a group of small investors who together manage to form a big capital, allowing them to finance companies, projects, or individuals through loan contracts in which both parties agree on debt repayment period and the interest percentage to be paid. 

Crowdlending mainly develops through participation in digital platforms that act as intermediaries between the parties or with the assistance of companies that provide the service of connecting those who make up the capital and those seeking to get financing.

  • Crowdfunding

This type of Alternative Financing is legally regulated in Spain, which allowed the formalization and promotion of new types of credit different from traditional ones. It consists of establishing a goal or amount of money to be collected, either by a company, an individual, or a project, which must be reached within a specified time.

In Crowdfunding, investors will receive, in exchange for their contribution to specific financing, a product or asset different from money which is completely symbolic, meaning that its value will not be directly related to the amount of money contributed.

In case the money or goal is not achieved when the collection period ends, the company, individual, or project that has been receiving the capital must return the entire contribution to those who had contribution to the cause. 

  • Equity Crowdfunding

It is a type of Alternative Financing aimed at promoting projects or emerging companies. In Equity Crowdfunding, a group of small investors injects capital into a company in exchange for obtaining company shares, with the aim of obtaining profits from the commercial activities of the invested company.

This Alternative Financing type operates mainly through companies that have online platforms where projects are presented, to constitute the collective investment capital.

It is important to say that these small investors, depending on the quantity and type of shares they obtain in exchange for their capital contribution, will have a voice and vote in the decisions made by the company. 

  • Family Offices

A family office is a private financial entity that offers specialized wealth management and full advisory services, adapted to manage and protect the economic resources of families, with the aim of transmitting them to future generations.

  • Factoring

It is a good possibility to increase a company`s cash flow; it consists of the assignment of a credit to a factoring company. In this way, the interested party immediately obtains money that would correspond to future payments for the company. The factoring company will be entirely free to manage the corresponding collections, obtaining commissions and interest generated according to each case.

If you want to know more about the possibility offered by Alternative Financing means, from Gentile Law, experts in business advisory, we tell you everything you need to know. 

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