By Farah Khalique
Here are some other smart financing ideas which might be able to help your business.
Invoice and revenue-based financing. Invoice financing isn’t new, but providers like MarketInvoice are. MarketInvoice allows businesses to auction their invoices to investors who can decide how much money to advance. An eBay-style auction system and a pay-as-you-go fee structure has revolutionised this traditional form of financing.
Revenue financing is another interesting solution, whereby a lender advances money to a business in return for a percentage of its sales or topline. Fleximize is one such provider that is hoping this idea will catch on in Europe. Max Chmyshuk, founder and managing partner says: “It’s quite developed in the US already, the alternative finance market is way more developed in the US.”
Minibonds. Italy’s banking sector took a major hit during the financial crisis, prompting the government to radically open up alternative financing options for its SMEs. Italian companies can now borrow as little as a few million euros in the debt markets by issuing bonds that have most of the hallmarks of a large, public bond. The government also scrapped withholding tax to attract debt investors, and a number of banks have raised funds to invest in minibonds. There have even been calls for the government to create a central credit fund to buy minibonds issues by Italian companies, and issue larger bonds to institutional investors. Watch this space.
SME loan securitisation. The European Central Bank is keen to kickstart the ‘real’ economy by linking up banks and investors to help finance SMEs. Banks own risky SME loans that rack up capital charges they would rather avoid. Meanwhile, there are investors that understand those risks and are willing to take them on, in exchange for the right return. If banks can bundle up SME loans, i.e. securitise them and sell the securitisation to investors, this would theoretically support new lending as it would take risky assets off banks’ books and reduce capital charges, thus allowing them to lend more.
The ECB launched its asset-backed securities (ABS) loan-level initiative to improve investor confidence in the European ABS markets, by allowing investors to see the underlying loans that back securities. Unfortunately, the ECB also offered the banks cheap funding so they haven’t bothered to engage fully with securitisation yet. But, in theory, it’s a good solution.
Farah Khalique is a freelance business and financial journalist, with a keen interest in writing about non-bank financing solutions that can help SMEs grow their business. She has written extensively about banking scandals and has made TV appearances on Sky News and The Wall Street Journal Live to comment on topical issues including money laundering and bankers’ bonuses. Follow her on Twitter.