Fintech is fueling a boom in innovation, offering CFOs a variety of new ways to access capital.
For years, alternative financing models have changed the way companies access cash. Now, fintech is offering innovations, from subscription and fee-based online lending markets to blockchain, that are changing the landscape of alternative finance itself. This, in turn, changes the competitive balance as traditional banks go toe-to-toe with financiers to give CFOs better terms and more flexibility to manage working capital.
“Businesses rely on access to growth capital, but banks are constrained by risk appetite and strict regulation,” Deloitte explained in a 2021 report. Direct lenders can offer attractive interest rates with little or no dilution of business equity, allowing companies to “make acquisitions, refinance bank lenders, consolidate [their] shareholder base and invest in growth.”
Varieties of alternative finance already range from venture capital, crowdfunding and equipment finance to peer-to-peer lending, angel investing, factoring and revenue-based financing. The factoring market itself demonstrates a thirst for alternative ways to raise funds. According to the latest estimate from Researchandmarkets.com, the global factoring market is valued at $3.8 trillion in 2024 and is projected to reach $5.3 trillion in 2028 at a CAGR of 7.8%.
Recent fintech-based innovations promise to further expand alternative finance by connecting lenders and loan applicants using AI-powered algorithms.
Market financing
Market-based financing means a company applies for a loan online, where it is assessed, categorized and assigned an interest rate using the provider’s own credit scoring tool. For a fixed fee or subscription, direct market lenders facilitate all elements of the transaction, including collecting borrower applications, assigning credit scores, advertising the loan application, connecting borrowers with interested investors, originating the loan, and servicing any collected loan payments.
The leading provider is Leverest FinTech, which launched its financial platform in 2021. With offices in Frankfurt, Berlin, London and, more recently, the US, it brings together private investors, debt and M&A advisors, and corporations with lender partners, including banks. and debt funds anywhere in the world.
To date, Leverest has completed over 100 transactions with 600 lenders in Europe, valued at over US$1 billion, managed through the platform. But this is not only a lending market, but also a specialized tool for managing customer relationships.
Instead of tracking your relationship bank’s offers in an Excel file, “you always have live data to see who’s a good fit for your project,” says Leverest COO Yanick Bold. “You always get a response from the tool because we have so much data and so many funders on the platform.”
The platform is also designed to make the funding process more efficient, he adds, a particularly valuable feature for CFOS SMEs looking to free up time and resources.
“We see a lot of parties that may have a market,” notes Bold, “but at the same time they have internal consultants who need to help the parties complete financing. We took a different approach by using digital tools for a DIY solution. You really need both to put that power back in the hands of the CFO.”
Many CFOs have limited time to manage the competitive process, so they tend to rely on only two or three lenders. The brave man argues. “The process management software we offer, whether it’s a data room or a deal dashboard, helps send invitations and share and receive information. With only a marketplace, they would still have to manage the process manually.”
In addition to corporations, some of Leverest’s marketplace clients are large investment banks that manage private equity financing processes.
“They also use this platform because it makes them much more efficient,” says Bold. “The entire investment banking sector is still not digitized. They still use Excel and Outlook. They love our platform because it can save them hundreds of hours of time.”
Blockchain makes loan approval easier
CFOs can expect more financial innovations to emerge this year.
Blockchain is poised to revolutionize the efficiency of credit transactions, consultants Lexington Capital Holdings said in a recent report, and as the technology gains traction it will change the way transactions are conducted.
“The decentralized and transparent nature of blockchain can simplify the loan approval process, improve security, and reduce fraud,” Lexington concludes. “Blockchain-based smart contracts can automate and speed up various aspects of lending, making the entire process more efficient.”
AI-powered credit scoring, the technology behind platforms like Leverest, will continue to streamline the risk assessment project. “AI is poised to revolutionize credit scoring, allowing lenders to assess risk with unprecedented precision,” predicts Lexington. This shift to more accurate risk assessment will be especially relevant for businesses with non-traditional credit profiles.
New and innovative market models not only enable CFOs to more effectively navigate a complex financial market, but also provide value-added process management technologies to their clients. The supplier universe is also likely to undergo its own transformation; Lexington expects this year to see increased collaboration between traditional banks and alternative lenders, creating hybrid financial solutions that serve a wider range of businesses.