New ways for corporate credit Corporate Financing

The situation is different for smaller and/or young companies. Small and medium-sized companies cannot always score with a good credit rating and sufficient security. Loans are rejected.

According to a GFI study, in which almost 3,100 companies were surveyed, SMEs, in particular, indicated that they had difficulty obtaining a business loan.

Grant corporate loans

money

But why are banks and savings banks so reluctant to grant corporate loans? On the one hand, this has to do with new legal framework conditions, which place even stricter requirements on banks, for example, the increase in equity.

The build-up of equity virtually prohibits banks from taking new risks. Due to the higher probability of default, small and medium-sized companies initially pose an increased risk for banks.

Second, the low-interest rate policy of the Good Finance Bank leads to a decline in earnings of up to 30% for savings banks and cooperative banks. As a result, banks simply cannot afford major corporate loan defaults. A third reason why banks tend to reject self-employed and small businesses is the credit database planned by the Good Finance Bank.

With this credit reporting system, the GFB wants to gain better control over the financial institutions in Europe in the long term. In the future, all loans with a volume of USD 25,000 or more, including related data records, are to be reported to the GFB.

This development will also put banks and savings banks under even greater pressure in the future, which will lead to even more selective and restrictive lending of corporate loans.

The prospects for a corporate loan from the bank are not really good for small and medium-sized companies in Germany. Entrepreneurs are therefore required to rethink their financing strategy and look around for alternatives. But what options for debt financing does a small entrepreneur have apart from the bank’s usual corporate loan?

Supplier credits enable an entrepreneur to purchase deferred goods. This gives the company the opportunity to receive and work with goods or resources, but only to pay for them later. However, this type of credit only relates to a specific commodity and is usually only granted for a short time.

When it comes to vehicles or machines, leasing offers a convenient way to get the capital goods you need without having to pay the full amount straight away. Instead, the lessee pays the lessor a monthly lease payment for the use of the capital goods. In this context, one also speaks of the so-called hire purchase.

A disadvantage compared to a corporate loan may be that the rates are usually higher

cash

However, a disadvantage compared to a corporate loan may be that the rates are usually higher and the lessee has no way of terminating the contract prematurely. The lessor, on the other hand, can terminate the contract without delay in the event of late payment.

In factoring, an entrepreneur sells his receivables, for example, open customer invoices, to a factoring company. This gives the company direct cash from open invoices without having to wait any longer. On the other hand, the factoring company naturally also charges fees for its services. These are usually 0.6% to 2.5% of the purchased receivables, which in turn represents costs for the entrepreneur. In addition, factoring is only relevant to certain industries. It can be difficult, for example, in the service or retail sector.

For short-term financing, an entrepreneur can also consider an overdraft facility. A specific credit limit for the business bank account is defined here in advance. The entrepreneur may overdraw his business account up to this limit. The disadvantage is the usually very high-interest rates that the bank charges for the so-called overdraft.

However, financial markets are also changing in the course of digitization. The Internet opens up completely new opportunities for both companies and financial service providers. In this way, new models of corporate finance have developed in recent years that give small and medium-sized companies easy and uncomplicated access to debt capital.

Online credit marketplaces

cash

Online credit marketplaces, for example, allow private borrowers as well as the self-employed and freelancers to stop their loan projects and borrow money from private investors.

The so-called peer-to-peer loans have become a very popular form of financing the self-employed, freelancers or start-ups in many countries because they represent a win-win situation for everyone involved: small companies are no longer dependent on banks.

But rather finally have the chance to get a private loan for your project. Investors can support interesting projects and at the same time achieve a good return. In the United Kingdom, in particular, the volume of corporate loans brokered through online credit exchanges has reached a remarkable level.

Crowdfunding represents at least as a charming form of corporate financing, which is based on a similar principle to peer-to-peer loans. Here, the loan project is also published on an online marketplace and can be financed by private as well as institutional investors,

Here, too, it is a matter of financing by a group of people. Depending on the type of crowdfunding, capital providers can either donate, invest or borrow their money.

With reward-based crowdfunding, in the actual sense, investors receive a non-cash bonus or an ideal gift in return for their capital. If, for example, a new business idea is financed by a start-up that wants to produce a completely new product, investors who firmly believe in the idea and its success will receive, for example, the first series model.

In contrast, equity-based crowdfunding involves the acquisition of company shares. In return, the investors receive a share in the annual profit and the increase in company value in return for their investment.

Crowdlending 

money

The third form of crowdfunding is also known as crowdlending and means nothing more than a loan that a group of people gives to a borrower who wants to implement his project with it. The lenders, therefore, lend money to the borrower and receive interest in return.

The big advantage of crowdfunding is the high financing speed – often capital seekers have their money in their account within a few days. On the other hand, such new financing alternatives will partially undermine the power of the banks, which until a few years ago has not been touched.