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Global Finance

juni 14, 2024


Alternative Financing Comes Of Age

Fintech is fueling a boom in innovation, offering CFOs an array of new ways to access capital.

For years, alternative financing models have been changing the way companies access cash. Now, fintech is offering innovations, from subscription and fee-based online lending marketplaces to blockchain, that are changing the alternative financing landscape itself. That, in turn, is altering the competitive balance as traditional banks go head-to-head with financiers to provide CFOs with better terms and greater flexibility for managing working capital.

 “Businesses rely on access to growth capital, yet due to their risk appetite and stringent regulation, banks are constrained,” Deloitte explained in a 2021 paper. Direct lenders can offer attractive rates with little or no equity dilution of the business, enabling companies to “make acquisitions, refinance bank lenders, consolidate [their] shareholder base, and invest in growth.”

Varieties of alternative financing already range from venture capital, crowdfunding and equipment financing to peer-to-peer lending, angel investing, factoring and revenue-based financing. The factoring market alone reveals the thirst for alternative means of raising cash. The most recent estimate by placed the global factoring market at $3.8 trillion in 2024 and forecast that it will reach $5.3 trillion in 2028 at a CAGR of 7.8%. 

The latest, fintech-fueled innovations promise to expand alternative financing even further, pairing lenders and loan seekers through algorithms generated by artificial intelligence. 

Marketplace Financing

Marketplace financing means the company submits a loan application online, where it is assessed, graded and assigned an interest rate using the provider’s proprietary credit scoring tool. For a flat fee or subscription, direct marketplace lenders facilitate all elements of the transaction, including collecting borrower applications, assigning credit ratings, advertising the loan request, pairing borrowers with interested investors, originating the loan and servicing any collected loan payments.

A leading provider is Leverest FinTech, which launched its financing platform in 2021. With offices in Frankfurt, Berlin, London, and more recently in the US, it connects private equity investors, debt and M&A advisors, and corporates with lending partners, including banks and debt funds, anywhere in the world.   

Leverest has thus far completed over 100 transactions with 600 lenders in Europe, amounting to more than $1 billion managed via the platform. But in addition to being a lending marketplace, it is also a specialized customer relationship management tool.

Instead of tracking your relationship bank’s offerings on an Excel file, “you always have up-to-date data to see who fits your project,” says Leverest COO Janik Bold. “You always get the answer from the tool because we have so much data and so many financing parties on the platform.”

The platform is also geared toward making the financing process more efficient, he adds: an especially valuable characteristic for CFOS of small to midsize enterprises who want to free up time and resources.

“We see a lot of parties that might have a marketplace,” Bold notes, “but then at the same time they have internal consultants that need to help the parties finalize the financing. We took a different approach, using digital tools to enable a do-it-yourself solution. You really need both to put that power back into the hands of the CFO.”

Many CFOs have limited time to manage a competitive process, which is why they tend to rely on just two or three relationship lenders. Bold argues. “The process management software we offer, be it a data room or a deal cockpit, helps to send out invites and share and receive information. With just a marketplace alone, they still would have to manage that process manually.”

Other than corporates, some of Leverest’s marketplace clients are bigger investment banks that manage financing processes for private equity.

“Why they’re also using the platform is because it’s also making them much more efficient,” Bold says. “The whole investment banking space is still not digitized. They’re still using Excel and Outlook. They love our platform because they can save hundreds of hours of time.”  

Blockchain Streamlines Loan Approval

CFOs can expect further financing innovations to roll out this year.

Blockchain is set to revolutionize loan transaction efficiency, say consultants at Lexington Capital Holdings in a recent report, and as the technology gains traction, it will redefine the way transactions occur.

“The decentralized and transparent nature of blockchain can streamline the loan approval process, enhance security and reduce fraud,” Lexington concludes. “Smart contracts, enabled by blockchain, have the potential to automate and expedite various aspects of lending, making the entire process more efficient.”

Artificial intelligence-driven credit scoring, the technology behind platforms like Leverest, will continue to streamline the risk assessment project. “AI is poised to revolutionize credit scoring, allowing lenders to assess risk with unprecedented precision,” Lexington foresees. This shift toward more accurate risk assessment will be particularly relevant for businesses with nontraditional credit profiles. 

New and innovative marketplace models not only allow CFOs to navigate the complex financing market more effectively, but also provide value-added process management technology to their clients. The provider universe is likely to undergo its own transformation as well; Lexington anticipates this year will see increased collaboration between traditional banks and alternative lenders, creating hybrid financing solutions that cater to a broader spectrum of businesses.

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