Finance & Currency Risk Management
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By Timothy Woods

How To Raise Capital For Businesses Beyond Banks

Published November 5, 2014

Non-bank financing has become increasingly crucial to SMEs in a corporate landscape increasingly bereft of bank capital as regulators continue to push risk out from banks to the corporate sector. SMEs just like yours have to come up with new ways to generate the capital needed to cover short-term liabilities and ensure that long-term debts are covered.

No easy task when bank credit is far from a given.

So what can you do to raise capital for your business beyond asking your bank?

This article gives you some viable alternatives to bank financing for your business, looking at a recent CFO.com post with some invaluable insights, and we talk about one additional growing channel for raising capital.

The aforementioned CFO.com article authored by Mary Beth Findlay, which you can access here, highlights a number of options for how to raise capital for businesses away from bank financing.

We recommend this piece as a good introduction to some alternative means of financing. It looks at private equity firms, venture capitalists and mezzanine lenders as options and explains what each involves for your company.

CFO.com’s main takeaways on alternative options to bank finance

1. Private equity firms

  • Sell equity in your company for capital
  • Receive “intellectual capital” in the form of consultation and advice on growing your company
  • Develop a strategic plan with the private equity firm

2. Venture capitalist firm

  • Particularly attractive for start-up companies
  • Possible capital source but there is simply not enough venture capitalist money for the number of growth companies that require capital

3. Mezzanine lenders

  • Typically involve bridge loans until cheaper capital is available
  • Typically short-term debt averaging three years
Alternative borrowing: Bank lending and Funding Circle
Alternative borrowing: Bank lending and Funding Circle

Image taken from Bloomberg, showing how bank lending to SMEs has dwindled, which has allowed companies like Funding Circle to fill in the gap.

At Kantox we also want to highlight the growing importance of the alternative finance sector in providing business loans and financing.

Raising capital from the alternative finance sector

FinTech” companies – technology engaged to deliver financial services – are growing, with over $3 billion invested in 2013 in the sector and set to balloon further year on year.

FinTech is driving the alternative finance sector, with a significant portion made up of companies that provide financing.

Lending Club, a US-based FinTech that provides credit to companies at low interest rates, is widely viewed as the leading global FinTech company. Another notable alternative finance company that provides private capital for SMEs is Funding Circle.

As well as looking at how to raise capital for businesses externally, more SMEs have begun accumulating and hoarding money reserves to fund their operations as bank financing can no longer be relied upon.

To increase your ability to do so, we recommend you look at fundamental ways to improve your company’s liquidity.

Download your free guide on how to do just that at the following link:

cta-blog-liquidity

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