Alternative financing is increasingly necessary in Europe. In today's post we explain why, what are its main advantages or what types of alternative financing exist.
Current situation
As of the economic crisis of 2008, in which 70% of the financing of companies was banking , and in the case of financing for individuals could exceed 90% , banks stopped providing financing and further exacerbated the economic problems of companies and families.
From this moment on, alternative financing to the bank was extremely important , and many countries learned from the mistake and ensure a more diversified financing structure to make companies more resistant to shocks that affect the banking system. Financial diversification in a major company shows a financial healthy point for a company.
To give an example of this transition towards alternative financing, there are countries, such as the United States , that currently bank financing represents less than 25% , something that unfortunately does not happen in Spain , because bank financing still represents 80% of financing Overall, a trend considered negative by the European Central Bank because it ensures that diversified financing and non-dependence help economies.
In recent years, it has grown by around 114% in the European Union and the leading countries in alternative financing are the United Kingdom, France, Germany, Sweden and the Netherlands.
If you want to know more information, you can see the study carried out in 2017 on this type of financing carried out by the prestigious University of Cambridge by clicking on the link.
The following graphs show the growth of this type of financing in Europe, in the world and its geographical distribution in Europe:
Growth of alternative financing in Europe
Growth of alternative financing in the world
Volume by amount of alternative financing by country
What is alternative financing
You can find many definitions to describe what alternative financing is , but the one that best defines it is the one that understands by alternative financing all those sources of financing that are independent of traditional bank financing , such as private financing .
This type of financing unites investors with companies that need short-term financing. Also for individuals. This financing is not offered by a bank, it is offered by private financial entities, which operate similarly to the bank and which are regulated by the Bank of Spain .
Alternative financing grows increasingly in Spain as this service funding has more advantages than disadvantages, especially when denied access to bank credit.
Advantages of alternative financing
Its main advantages are:
- Speed : You do not need as much bureaucracy as with a traditional bank and you get a more personalized treatment , which leads to faster access to credit adapted to all needs.
- Flexibility : You can get a refund of the credit fully adapted to the customer's needs, with grace periods if necessary.
- Regulatory supervision : Currently, it is increasingly regulated , although there are still companies that try to offer services without having taken all the appropriate steps. It is very important to request the appropriate documentation before resorting to private financing to ensure compliance with the law.
- Reduce bank dependency : As we have said before, for a corporate and global economy it is good to diversify financing and reduce excessive dependence on bank credit.
Disadvantages:
- Higher risk of loss : A real estate guarantee is generally required to reduce the risk of the transaction. If the amount is not returned, you run the risk of losing the property.
Types of financing
There are many types of alternative financing to the bank, more and more. We will show the most common:
- Private financing : it is the most frequently used financing after banking and is also fully regulated by the Bank of Spain. It works in a similar way to bank financing but the money comes from an investor and with the particularity that, to reduce risk, a property guarantees the operation. At Dark Keep we are market leaders offering this solution in the national market.
- Microcredits : They also come from non-banking entities and can carry abusive interests, you have to be careful.
- Commercial credit : Deferral that companies grant to their clients, normally to be paid in 30 or 60 days.
- Factoring : Assignment of collection rights in exchange for interest. If it is done through a financing platform it is called Crowdfactoring.
- Family, friends and grants: take advantage of opportunities in the closest state and environment.
Collaborative financing:
- Corwlending : Loans between individuals and companies. They are online platforms that connect people or companies that need money and investors who can lend it.
- Equity Crowdfunding : A number of people or companies that finance a project in exchange for shares.
- Crowdfunding : massive financing system without compensation, usually to support a project.
Financing for startups:
- Business Angel : Contribution of money to make it profitable with the good running of the company. Confidence in the project and, in addition to capital, brings experience and contacts.
- Venture Capital : Investment in startups with potential in exchange for a percentage.
Financing for companies
We must not stop giving importance to alternative financing for companies because it is the great beneficiary of this type of financing. More and more companies have to resort to this source of financing and it represents the largest volume of it, both in terms of quantity and volume of operations.
Companies resort to this type of financing because it is the only one that can unlock any financial situation when the bank does not grant it, either due to risk or delinquency reasons. In many cases, alternative financing and private financing are the only way to rescue many companies and the only way to continue with economic activity.
At Dark Keep we are leaders in alternative financing for companies and we have experience in all sectors, in construction, shops, industry, food, services ...
All you have to do is fill in the form that you will find on the right of this page and we will be able to contact you in less than 24 hours.