In recent years, the finance industry has undergone a significant transformation, primarily due to the emergence of fintech. This has resulted in a surge of innovation, presenting Chief Financial Officers (CFOs) with a wide range of new opportunities to access capital through alternative financing models.
The era of traditional banks holding a monopoly over cash access has come to an end. Fintech innovations, such as subscription and fee-based online lending platforms, have brought about a revolution in the alternative financing landscape. These changes are providing CFOs with better terms and greater flexibility in managing their working capital, thereby shifting the competitive balance in favour of alternative financers.
According to a report by Deloitte in 2021, businesses heavily rely on access to growth capital. However, traditional banks often face constraints due to their risk appetite and stringent regulations, leaving a gap in the market. Direct lenders step in to offer attractive rates with little or no equity dilution of the business. This enables companies to make acquisitions, refinance bank lenders, consolidate their shareholder base, and invest in their growth.
The world of alternative financing already encompasses a wide variety of options, including venture capital, crowdfunding, equipment financing, peer-to-peer lending, angel investing, factoring, and revenue-based financing. The factoring market alone is a clear indicator of the growing need for alternative cash-raising methods. Researchandmarkets.com has estimated the global factoring market to be worth $3.8 trillion in 2024, with forecasts projecting it to reach $5.3 trillion in 2028, marking a 7.8% compound annual growth rate.
Further innovations driven by fintech are set to expand alternative financing options. These innovations involve pairing lenders and loan seekers through algorithms generated by artificial intelligence, ushering in a new era of marketplace financing.
Leverest FinTech is one of the pioneering providers of marketplace financing. Through its platform, it connects private equity investors, debt and M&A advisors, and corporates with lending partners, including banks and debt funds, worldwide. Leverest has successfully completed over 100 transactions with 600 lenders in Europe, managing over $1 billion via their platform. Additionally, it serves as a specialized customer relationship management tool, offering a valuable, efficient, and do-it-yourself solution for CFOs to manage the financing process.
Furthermore, blockchain technology is set to revolutionize the efficiency of loan transactions. The decentralized and transparent nature of blockchain aims to streamline the loan approval process, enhance security, and reduce fraud. Smart contracts, enabled by blockchain, have the potential to automate and expedite various aspects of lending, making the entire process more efficient.
Looking ahead, CFOs can anticipate further innovations in the realm of alternative financing. Artificial intelligence-driven credit scoring will continue to revolutionize the risk assessment process, enabling lenders to assess risk with unparalleled precision. This shift towards more accurate risk assessment will be particularly relevant for businesses with nontraditional credit profiles.
In conclusion, the rise of alternative financing, fuelled by fintech, is reshaping the way businesses access capital. It is providing CFOs with greater autonomy, flexibility, and efficiency in managing their working capital, and is set to bring about further groundbreaking transformations in the financial landscape.