Loans as a source of financing
Business loans have usually been understood as a formula to finance long term assets, being normally destined to the purchase of assets that our company will use in its productive process and thus be able to generate more income.
- Examples of this could be the purchase of machinery, property, equipment, furniture, etc. or expansion projects. Therefore, the purchase of goods that are not those that we will directly transform or sell to our clients, but that we need for that productive process in which we turn raw materials into our final product.
This use has been common due to the conditions that these financing formulas usually entail. They allow us to have a specific amount for the acquisition of these goods, which we will return in instalments that include payment of interest and return of the capital that has been granted to us.
It is convenient because the acquisition of these assets will not generate immediate income and in this way we have time to proceed to convert raw materials into income and be able to gradually return the capital.
However, the use of this source of financing should not always be underestimated for the payment of suppliers who provide us with products that we use in our production process. Therefore we could also use this source of financing in the short term if it is used correctly.
If your activity involves, for example, the purchase of raw materials with a very long maturation process (conversion into the final product and sale) and you also have very concentrated customers, it could be a great idea as a source of financing.
- An example of this is a construction company that has a concession with only one client. It is a very long project and the financing needs are very specific: payment to suppliers of raw materials to be used in the construction process and enough cash to maintain its cost structure until it receives the money from its client at the end of the project.
Such a clear financing need in terms of time and capital could easily be financed by a financial institution through a loan. Now, what possibilities are there to finance business projects? Do you think banking is the only option?
It is not.
In recent years, thanks to the revolution in new technologies and the need for companies to diversify their sources of financing, new alternative systems have emerged. One of the most used in Spain is crowdlending, a system through which companies get alternative financing in the form of loans that are funded by investors who lend them their money. This whole system is intermediated through Alternative Financing Platforms.
The financial revolution
Thanks to new technologies, socio-cultural changes and the change of mentality in consumers have emerged new ways of doing things, more efficient and often cheaper. This is happening in the sector of transport, accommodation or real estate. You will probably think of an application that offers one of these services. Now, this revolution is also a reality in the financial sector with the emergence of the so-called Fintech.
A Fintech platform is one that unites finance (Fin) with technology (Tech), which sells a product or financial service traditionally offered by banks (or not) through a web platform. The philosophy of these platforms is transparency, agility and simplicity of use, thus making a breakthrough in Spain.
Crowdlending platforms are part of the Fintech sector as it is a method of financing and alternative investment by virtue of which companies or individuals obtain financing directly from private investors who lend their money in exchange for a return. Crowdlending platforms act as intermediaries between the two parties.
Differences between being financed traditionally or through crowdlending
The main differences are the speed, simplicity and transparency offered by crowdlending loans. Companies apply for financing through the platform 100% online and without travel.
Characteristics of crowdlending loans for companies
The companies find in the crowdlending platforms loans of different modalities which can be:
- Short-term loans
- Long-term loans
- Factoring or advance of invoices
Therefore, a company can finance its investment and working capital needs through crowdlending platforms.
The interest rate on these loans can range from 2% to around 8% per annum. This depends on each platform and the level of solvency shown by the company. One of the variables to get a lower interest rate is to get a guarantee or belong to a mutual guarantee society. This can be facilitated by one of the fintech participatory financing platforms.
With respect to term, loans ranging from 1 month to about 5 years, depending on the platform.
Advantages of crowdlending loans
The following are the advantages of this type of loans, which are offered by most crowdlending platforms.
- No cancellation fee: There is no fee for early repayment, either partial or total. Therefore the company will be able to cancel the loan at any time and thus stop paying interest on it.
- Free study: The study of the operation is completely free and without commitment.
- 100% online: The application for financing, the sending of documentation, the analysis… Everything is done 100% online, without the need for travel.
- Agile and simple: Since, as we have indicated, it is an online financing, it is achieved a greater agility in the service and also a greater simplicity in the process.
- Without hiring additional products: Through crowdlending, the company will not have to hire any additional product or service that makes its financing more expensive.
- No small print, no asterisks. The company will know all the information about your loan in a clear way.
- Interest rate from 2% + Euribor. A very low interest rate thanks to the guarantee of a Reciprocal Guarantee Society.
- Financing for all types of companies and the self-employed.