What is Alternative Finance?

In the ever-evolving landscape of finance, traditional lending methods have paved the way for innovative solutions known as Alternative Finance. With the rise of technology and changing consumer preferences, as well as many shifts in the business landscape at a global scale, alternative finance has emerged as a viable and accessible means of funding for businesses of all scales. This article sheds light on the concept of Alternative Finance, its various forms, and how it is reshaping the financial landscape. We also take a look at what to look for when considering Alternative Finance as a capital growth option, and what to avoid.

What is Alternative Finance?

Alternative finance refers to a range of non-traditional financial channels that provide alternatives to traditional banking institutions. These innovative solutions harness the power of technology, data, and evolving market trends to offer new ways of accessing funding and investing capital. Unlike conventional finance, alternative finance disrupts the established norms by democratizing financial services and catering to the needs of underserved individuals and businesses. While the various forms of Alternative Finance are outlined below, the focus of this article is the Alternative Finance options provided by Alternative Finance Agencies, such as Express Business Funding and the core features and benefits therein.

What forms of Alternative Finance are available?

• Invoice Trading/Factoring: Invoice trading or factoring platforms enable businesses to sell their unpaid invoices to investors at a discounted rate. This provides businesses with immediate cash flow, while investors earn returns by collecting the full invoice amount at a later date.
• Asset-based Lending: Asset-based Lending offers businesses a valuable financial tool to leverage their tangible assets, stock, and/or receivables to obtain flexible funding. It provides quick access to capital, increased borrowing capacity, and the versatility to support various operational and growth needs.
• Equipment Leasing: Equipment Leasing is an Alternative Finance solution in which a lender purchases an asset/s at an agreed value. The ‘seller’ then makes a series of monthly payments to settle the capital value and buy back the asset/s sold. This form of finance provides lenders with surety, by way of the asset purchased, and allows for businesses with poor or no credit to receive funding when traditional lenders would be unable to provide capital. The seller also retains possession of the asset during the repayment period, allowing them to continue their business operations as normal.
• Debtor-in-Possession Finance: DIP financing, short for Debtor-in-Possession financing, is a form of financing provided to a company that has filed for bankruptcy protection under the Companies’ Creditors Arrangement Act (CCAA). This type of financing allows the debtor to continue its operations and restructure its financial affairs while under bankruptcy protection. DIP financing is typically secured by the debtor’s assets and takes priority over other existing debts, ensuring that the lender is repaid first in case of liquidation. It provides the necessary funds to maintain essential operations, pay employees, and meet ongoing financial obligations, thereby increasing the chances of the company’s successful reorganization and emergence from bankruptcy.
• Merger & Acquisition Finance: Merger & Acquisition Finance (M&A Finance for short) provides a business with the capital to complete the purchase of another entity. As the name suggests, this can be either a merger or a complete acquisition – the lending process remains the same for both.
• Peer-to-Peer (P2P) Lending: P2P lending platforms connect borrowers directly with lenders, bypassing traditional financial intermediaries. These platforms leverage technology to match borrowers’ funding requirements with investors willing to provide capital, creating a mutually beneficial arrangement.
• Crowd Funding: Crowd funding enables entrepreneurs and individuals to raise capital by collecting small contributions from a large number of people. This approach allows individuals to access funding for creative projects, social causes, or business ventures, without relying solely on traditional investment avenues. This type of lending is generally equity-based, while P2P Lending is loan-based. Though the two may appear similar in nature, the value exchange is the key difference.

What are the benefits of Alternative Finance?

Alternative Finance offers several benefits, including increased access to capital for individuals and businesses, simplified application processes, and reduced barriers to entry compared to traditional finance. These innovative solutions often provide faster funding decisions, transparency, and flexibility in loan terms.

Alternative Finance also allows businesses experiencing financial challenges to become traditionally bankable, address outstanding issues with the CRA, and improve their overall function as an entity.

Despite these benefits, Alternative Finance also presents certain challenges. As these platforms operate in a less regulated environment compared to traditional finance, there may be potential risks associated with fraud, data security, and lack of investor protection. It is essential for individuals and businesses to conduct thorough research and due diligence before engaging with Alternative Finance platforms/ agencies.

Express Business Funding strive to standardize best practices in the Alternative Finance industry and establish a code of ethics to which all other agencies adhere. In this way, the Alternative Finance industry would be more widely accepted as an essential part of the commercial space, without the hindrance of unscrupulous lenders.

We urge you to conduct thorough research before engaging any Alternative Finance agency and request testimonials and references to ensure that you are not at risk.

In Conclusion

Alternative Finance is revolutionizing the financial landscape by offering new and accessible funding options outside the realm of traditional banking. With its diverse forms, Alternative Finance caters to the evolving needs of individuals and businesses, providing opportunities for growth and financial empowerment. As technology continues to advance and consumer demands change, the industry is poised to play an increasingly significant role in shaping the future of finance.

If you are looking for an Alternative Finance brand which prides itself on its innovation and ethics, we would love to chat with you and prove ourselves to be the end of your search. You can contact our Account Managers to begin your journey here.