Liquidity is one of the most important building blocks for long-term business success. However, access to traditional sources of financing is often very complicated for SMEs. Particularly in the current economic situation, alternative corporate financing without going through the house bank is more in demand than ever, because banks only grant loans under the strictest conditions.
But there is good news! The alternative ways of business financing have interesting for SMEs Advantages over bank loans and offer solutions that are better adapted to the individual financing needs of companies.
We will explain to you which financing options are available to you as a small or medium-sized enterprise and what advantages they bring with them.
Why does alternative financing make sense for businesses?
It is not only since the Corona pandemic that SMEs have been struggling with challenges regarding financing from traditional lenders. It is and remains difficult for them to finance their investments with classic bank loans. As a result, the digitization of companies, products and services is increasingly being thwarted by traditional patterns. Small and medium-sized enterprises can no longer rely on banks, but must consider alternative corporate financing. A current study of the Federal Association Factoring for Medium-Sized Businesses also showed that SMEs want more diversity when it comes to financing and should look at the different options for corporate financing in the future. Alternative financing options are becoming increasingly important as an independent element and should be part of balanced financing as an instrument for accelerating growth - alongside debt and equity. The study also showed that 49% of SMEs would like more independence from their principal bank.
Another advantage of alternative corporate financing is the range of tailor-made financing solutions that are precisely adapted to the needs of the companies.
What alternative corporate financing is available?
Alternative corporate financing is usually tailored to specific functional areas and thus offers companies targeted financing solutions that are geared to their individual needs. Those who want to secure customer payment defaults use factoring; those who constantly need new industrial machinery lease commercial assets; while those who want to pre-finance goods benefit from commodity financing.
Accordingly, there is, for example, the possibility through direct or silent Shareholdings, Leasing, Factoring, crowdinvestingor a Purchase, goods or warehouse financing to obtain alternative financing for companies. Each financing solution offers a different focus and provides liquidity, balance sheet relief or an increase in the equity ratio.
Factoring of receivables
A popular alternative method of financing for businesses is factoring, whereby receivables are sold to a factoring company in order to Liquidity of a company more calculable and to make the Equity ratio strengthen. After deducting a fee, the company settles the outstanding receivables, bears the risk of non-payment and, if necessary, takes care of the collection and dunning process.
A distinction is made between different Forms of factoring:
- Genuine factoring: Assumption of the risk of default.
- Non-genuine factoring: No assumption of the risk of default.
- In-house factoring:The accounting remains with the customer, even if the factor assumes the default risk.
- Online factoring: Execution of the processes takes place online.
- reverse factoring: Also referred to as supply chain finance or purchase and supplier finance, is pre-financing to suppliers.
By selling the receivables, companies can focus on their business processes and receive a fully comprehensive Protection against late payment or default, and even in the event of their customers' insolvency. Factoring can be an interesting solution for your liquidity management, especially for fast-growing companies or when customers have long payment terms.
Although Fulfin does not provide traditional invoice pre-financing, we can nevertheless offer our customers an interesting, advantageous Alternative to factoring offer. Unlike many classic factoring contracts with a fixed term of at least one year, we offer you more flexible financing with individual terms. Furthermore, the entire process from the acquisition of goods to the sale can be financially supported.
Leasing for balance sheet relief
When it comes to leasing, there are many options to choose from. Just as the leasing of vehicles is possible, one can also choose other lease assets and pay off in monthly instalments, e.g. machinery, IT or industrial equipment. A special form of leasing is the Sale-and-lease-back procedure, in which the leasing company buys the asset from the company's inventory and then leases it back to it. The main advantage here is that the assets can always be renewed. Leasing also has the advantage that the Costs are transparent and these as Operating expenses can be claimed for tax purposes.
Although leasing relieves equity capital as well as the balance sheet total, this alternative form of corporate financing is not a viable option due to an Contractual obligation only interesting for longer-term investment planning.
Strengthen equity ratio through equity investments and mezzanine capital
Similar to equity, mezzanine capital can take the form of profit participation rights, profit participation certificates evidenced by securities or silent participations; convertible bonds and bonds with warrants are also possible.
Accordingly, silent and direct investments are ways to increase the equity ratio. In the case of direct investments, investors receive a interest-free loan Company shares of a company, whereas in the case of silent participations a interest-bearing loan is granted by the lenders.
Mezzanine capital represents a mixture of equity and debt capital and is an option for obtaining liquidity without collateral. This not only optimizes liquidity, but also the company's credit rating and balance sheet structure. This financing method always makes sense when a company is already established, shows growth potential and wants to expand capacities.
With the help of online platforms, several small investors (the so-called Crowd) finance projects within the framework of crowdfunding. A distinction is made here between crowdfunding and Crowdinvesting.The latter uses the financing forms of mezzanine capital (e.g. profit participation rights, dormant equity holdings).
Crowdfunding also lends itself to startups and SMEs, with many investors able to financially support companies with smaller amounts. Unlike crowdfunding, however, investors do not receive equity stakes or interest, but gifts and recognition. This can be, for example, a new, innovative product or a voucher from the company.
Purchase financing to improve liquidity
Particularly in the start-up phase, liquidity bottlenecks can occur, which can be balanced out by various forms of alternative financing for companies. Purchase Financing is always a good idea when a company needs to sell more products first in order to build up its liquidity, but at the same time already has to order new goods. To short-term bottlenecks the use of purchase financing can be useful to bridge the gap.
In this context, one often speaks of the Finetradingwhere a finetrader acts as an intermediary. Even though Fulfin is not a finetrader, we help you achieve immediate liquidity by providing you with the financial means for pre-financing.
Financing of goods and stocks
Another alternative method of financing is the purchase of goods or services. Inventory Financing:, whereby the Financing of Goods is to be understood as pre-financing and inventory financing as post-financing.
Fulfin offers you permanent liquidity and the opportunity to increase working capital through tailor-made goods and warehouse financing solutions.
Often, smaller businesses and online retailers lack the necessary capital to purchase new merchandise. In order to maintain a certain level of inventory, retailers usually have to place orders faster than sales are visible. Therefore, a short-term liquidity balance with the help of a merchandise loan is often necessary.
The Financing of Goods - also goods purchase financing - Fulfin steps in as a financing partner in advance so that the merchant can purchase the goods and bridge payment bottlenecks. Here, the merchant continues to act independently by negotiating prices and delivery terms with the merchant without the involvement of the financier.
In contrast, the Inventory Financing:The goods are already in the inventory of the trading company and have already been ordered and paid for. The goods are already in the inventory of the trading company and have already been ordered and paid for. In this method of financing, the countervalue of the goods is valued by the lender and used as collateral; the amount of the loan depends on the value of the goods.
In short, liquidity is drawn from the inventory and the lender uses the value of the goods as collateral. Thus, the liquidity tied up in the inventory is capitalized.
As SMEs face numerous hurdles in raising capital, alternative corporate financing is in demand and necessary for balanced financial management. Due to regulations and market process-related changes, companies have to face new challenges in raising capital and tap into additional sources of finance beyond traditional lenders. Alternative financing solutions offer many advantages and opportunities to strengthen the equity ratio, creditworthiness and liquidity of a company.
As alternative business finance is often tailored to a company's needs through tailored frameworks and specific focus areas, it can be more targeted to meet a need for capital where it is needed.
Companies should analyze their financing structure at regular intervals and consider alternative corporate financing. The aim here should be to create a certain independence from individual financiers, whereby a diversified portfolio can provide the necessary freedom.
Corporate finance in itself, as well as its diversification, is essential for a company's growth and ultimately its long-term success.
What are alternative forms of financing?
Alternative financing for companies refers to all forms of financing that take place away from banks and other traditional ways of raising capital.
What are the financing options?
In addition to classic bank loans, there are numerous alternatives that are optimally adapted to the financing needs of companies. These include, for example, the sale of receivables (factoring), leasing, mezzanine capital as well as purchase, goods and warehouse financing.
Why does alternative corporate financing make sense?
In addition to equity and debt capital, SMEs should focus on balanced corporate financing through alternative options and gain more independence from house banks.
What kind of financing does Fulfin offer for companies?
Fulfin offers alternative financing options for SMEs when cash flow is tight, including purchase, merchandise and supply financing. Ask today here a non-binding offer.