Keys to Analyze the Alternative Financing Offer
The financing offer for companies is increasing. It will continue to be so in the coming years; now, there are new products with very different characteristics from those we were used to seeing in banking, which have a very uniform offer and are already well known by companies.
Given this increase in the types of financing methods, it is convenient to focus on the key points to assess each one of them and choose the best one. From our point of view, this is what the company should analyze before opting for one or the other:
One # Financial characteristics
This is the first. Here we are not referring to the price but to the three essential characteristics that define any financing product: amount, term and periodicity of repayment. The first, the amount, is necessary to analyze because, today, much of the alternative financing is limited to specific figures. Hence, it is worth asking if the amount fits with the company’s operations. The second and third characteristics, at what term is the financing analyzed and how often it must be repaid, are essential. For example, if you are looking for a one-year loan to finance purchases, you may be more interested in one with a quarterly instalment than a monthly one. Another example is if you are looking for financing for the purchase of machinery,
Two # Time to funding
We don’t like Anglicisms, but we must recognize that they perfectly summarize a concept on many occasions, and this is one of those cases. The time to funding is when it takes for the entity to make the funds it has requested available. This process begins with the study by the entity of the financing proposal and ends with the receipt of the transfer by the company. Here it is convenient to know how the entity finances your operation; for example, if you choose a crowdlending platform, you will have to wait for your procedure to be funded by investors; if you choose a direct lending platform, you will not. However, you should avoid leaving these needs in the hands of third parties and plan your financing well so as not to have to run.
Three # Economic conditions
This point is critical, perhaps the one closest to 1#. Analyze everything you are going to pay well: opening commissions, study, early repayment or management, financing interest rate and, above all, if it is anticipated or due and, finally, costs associated with the formalization such as expenses notarial In an ideal world, all this cost is summarized in a single figure, the APR, which is required information by the banking sector, but that not all alternative financing entities report correctly, so you will have to take out the calculator and dust off the notes from the university, or if you prefer, request it from the entity if it has not provided it to you. You will see significant differences in the conditions of some commodities and others.
4# Formalization
How is the financing contract signed? The contract can be signed before a notary or not, and if it is a private contract without notarial intervention, it can be a physical or electronic contract. The intervened contract has higher costs and dramatically affects the time to funding since the signing must be coordinated between more parties. Also, signing it before a notary implies that the contract is executed, so the entity has more strength in case of non-payment. On the other hand, the private contract has less executive force, and if it is also signed electronically, it significantly reduces the time to funding.
Five # Form of payment
How the instalments are going to be paid is also a critical point. They can be attended via SEPA in its CORE modality, which means that the company cannot make returns, but that, for the moment, it is not reported in any database of non-payments. We say for now because alternative financing entities will only take a little time to report their irregular positions on Experian. It is also possible to meet the fees via transfer, which is the best way for the company since it has control of the payment, although few entities admit it. Finally, it is possible to make payments via promissory note; this ensures that the entity has an executive title in case of non-payment and, in addition, informs the RAI. This option is of little interest to the company.
Six# Guarantees
We talked last week about all the guarantees the company can offer when requesting its financing, which is a crucial point when choosing an alternative financing entity. Some of them require, as a rule, the personal guarantee of the partners, while others do not request it, also as a rule. The first over-guarantee operations when the company is already solvent, and the second is just the opposite.
With these six points, the company can compare all the existing non-bank financing offers in the market. In practice, no entity complies well with the six points, and they are weak in some, they go well in others, and the rest just the opposite, so the offer is varied and according to the taste and needs of the company.
