black baker tilly logo

Alternative Financing

What is alternative financing and what are its advantages?

In Spain, more than 95% of companies are self-employed and SMEs, which for their financing needs have almost always resorted to traditional banks.
alternative financing
However, access to bank financing often has its obstacles (guarantees, management costs, paperwork, lack of understanding of business models) that slow down or prevent obtaining the financing necessary for business development.

What is alternative financing? 

Alternative financing, also called non-bank financing, is the set of financial markets and instruments that do not come from traditional banks. The sources of non-bank financing are diverse, but they all have in common the fact that there is no bank involved in the process. We are therefore in front of the "direct lending" - the owner of the money directly lends the capital, since he is the owner of the entity or the fund that makes the loan. 

As a general idea, alternative financing can be classified into equity investors (venture capital, business angels, etc.) and debt alternatives (debt funds, venture debt, etc.). 

Each of the options has its advantages and disadvantages depending on the situation and the project that the company has. Here we focus on debt financing, but we also offer the capital raising or strategic investor investors.   

Advantages of alternative financing

Vs. bank financing 

The main advantage of non-bank financing over traditional bank financing is the flexibility to adapt to the borrower's needs and cash flow generation. 

Guarantees are clearly less demanding for companies than in bank loans. The repayment term is longer and is generally in bullet form, i.e. 100% repayment at the end of the period. Since non-bank financing is less regulated, it can be obtained more quickly.  

On the other hand, there are also disadvantages of alternative financing, such as the higher cost of financing, which usually includes a variable portion. In most of the options it is necessary to carry out an audit (Due Diligence) and for the investor to obtain a seat on the board of directors, even without voting rights.  

bank loan direct lending

Vs. Venture Capital

Alternative financing does not imply for a company the dilution of the participation of the current shareholders, as would be the case when a venture capital becomes part of the shareholding. It also avoids the whole process of entry and exit of the venture capital and therefore does not require a joint negotiated exit after the investment process.

The negotiation process is simpler and more agile and the cost is lower compared to venture capital. Equity is always the most expensive form of financing because it assumes more risk. Finally, if venture capital enters the company, it will interfere in the management of the company.

What are the alternative sources of financing?

There is a fairly wide variety of sources in the market and the number of options available continues to grow. The suitability of each option depends on the company's purpose for financing.

Alternative financing for SMEs

Venture Debt 

It is a financing alternative based on a combination of venture capital investment and a traditional loan. In exchange for receiving a loan of X amount, a combination of interest is paid and the company's capital is delivered. Due to its modality, it is a medium-term financing.

Cash Flow Lending

This is medium and long-term financing. The collateral for the loan is the expected cash flows that the company will generate. It is mainly used for investments, purchase of assets, execution of projects and contracts.

Renting and Sale & Rentback on assets

This is the sale of a company asset, usually real estate, for subsequent long-term leasing.  Long-term financing, basing the guarantee on the company's productive assets.

Loan to finance the purchase of companies

It is financing that is intended for the purchase of other companies or business units, customer portfolios or similar. The terms of the loan are determined by the creditworthiness of the purchased party and the expected development of the business plan.

Bridge loan

This loan is intended for temporary and urgent financing needs, for example, the need to cover cash flow in a timely manner. Sometimes they can also be until a larger definitive loan is obtained. Its main characteristic is flexibility and agility.

Credit liquidity

It is dedicated to any cash need, whether one-time or recurring. It can be, for example, to finance purchases or to diversify and complement the sources of financing of working capital.

Factoring without recourse

In non-recourse factoring, the company assigns the right to collect and the risk of its invoices in exchange for receiving the amount before the due date of the invoices. This financing improves solvency, debt and liquidity ratios. This financing does not appear on the company's balance sheet.

Alternative financing for large investments 

Alternative financing is mostly talked about only in the context of startups and small investments. On the contrary, however, it is also available for larger projects. In this context, compared to a bank loan or a venture capital investment, it has the great advantage that it does not count in CIRBE, given its non-bank status.

  • Direct lending is a direct way of providing financing to the company in which the lender is different from a financial or banking entity. Its actors are investment funds, which grant loans to companies with the objective of obtaining a return on their investors' capital.
  • The borrowers tend to be small or medium-sized enterprises (SMEs) rather than large listed companies or large corporations that already have access to corporate bond issuance, for example.
  • The lenders can be high net worth individuals or families or asset management companies. However, they will only consider loans above €5M, typically. Therefore, direct lending is mainly focused on middle market borrowers.

We answer your questions as corporate finance experts

Many entrepreneurs and managers have doubts when it comes to achieving and implementing the objectives of seeking finance and raising funds in line with the defined strategy:

  • Funding strategy: When should alternative financing be used? What is the optimal risk/return trade-off?
  • Identifying and assessing options: What sources of finance are available and which is the most suitable for me given my business situation?
  • Executing the deal: How do I get the best terms? How do I make my investment proposition more attractive to attract the best fund?
  • Closing: How do I manage communications with the operation's stakeholders?
  • Ongoing communication with management and stakeholders: How do I manage communications with stakeholders to maintain shareholder support?

Why Baker Tilly Global Deal Advisory?

Baker Tilly International is a Top 10 ranked professional services firm, with a strong focus on the Mid-market, offering global reach and regional support, specialised service teams, and extensive experience in high-growth sectors.

Training & Methodology
We continue to strengthen our existing competencies and aggressively invest in skills that enable our clients to make better decisions on alternative sources of funding.  

As a result of our work with companies in high-growth sectors, we have gained knowledge and experience in how to make it attractive to obtain the resources to grow without compromising ownership.
Data Analytics for M&A
Our Intelfin tool helps you understand and improve your strategy to identify the opportunities and risks hidden in the data. With rigorous modelling, we provide visibility into the competitive environment, reducing uncertainty and thus reducing the cost of funding.
Market Research
Our market analysis capacity, from the investment point of view, allows us to provide a personalised vision of the company and its market of action. 

 Our research team is constantly analysing high-growth markets, helping to identify those strategic partners who can contribute the most to your company's future growth.  

Discover How to ...

Market Research Technology
Our team of market analysis specialists is continuously analyzing the investments of the most active markets in the industry in order to unceasingly contribute ideas of the current market situation and identify the most relevant trends for senior management. We integrate the most relevant sources of information which allows us to discover the most interesting companies for venture capital and similarly helps us to identify the investors with the highest probability of involvement in an M&A process to ensure the success of our sell-side operations.

The reports and deductions of our advisors provide a broad view of the sector, both geographically and from the complementary or adjacent markets perspective.
Technology Data Analytics
for M&A
Advanced data anlytics is a weapon". Intelfin is an artificial intelligence tool we use for investing and creating value in SMEs through competitive analytics and the enterprise environment.

IntelFin consists of a cognitive system, which, through the application of advanced analytical technologies, facilitates the automation of investment and financing decisions in the field of non-listed companies and especially SMEs in high-growth sectors.

The information related to these companies is characterized by their lack of transparency and heterogeneity; thus, it is necessary to develop an advanced analysis which is as much predictive as prescriptive and is developed in a natural language custom, suitable to obtain greater clarity and knowledge of the investment scope.

The IntelFin system focuses especially on analyzing the variables that define and influence the competitive environment of a sector and the positioning of a company, analyzing their influence on future value creation. Therefore, IntelFin supports strategic decision-making to senior management by resolving questions such as:

¿What are my competitors' priorities, strategies and expansion plans? Who's my competition? Which competitor is most likely to grow at a higher rate?
Which areas of activity/business models will receive the most investment? Which sectors are most attractive to investors?
Which companies are going to experience the most growth in the near future? Which companies are most likely to receive investment or be acquired?
Training Methodology
We have developed training programs in an innovative set-up which guarantees our teams the acquisition of technical competences both in the field of corporate finance and in the field of psychology, that is much needed when it comes to negotiation processes.

We have a culture of continuous improvement of our processes, closely related to the use of information systems that allow the enhancement of internal communication between our teams, as well as external communication with our customers. Hence, we extend best practices identified internally in an efficient and rapid manner among our members.

Are you one of those who prefer to be well informed when making decisions?