Fintech is fueling a boom in innovation, offering CFOs a host of new ways to access capital.

For years, alternative financing models have been changing the way businesses access cash. Now, fintech is offering innovations, from online fee-based and subscription lending markets to blockchain, that are changing the very landscape of alternative financing. This, in turn, is altering the competitive balance as traditional banks compete with lenders to provide CFOs with better terms and greater flexibility for managing working capital.

“Businesses rely on access to capital for growth, but due to their risk appetite and stringent regulation, banks are constrained,” Deloitte explained in a 2021 paper. Direct lenders can offer attractive rates with little or no dilution of corporate capital, allowing companies to “make acquisitions, refinance bank lenders, consolidate [their] shareholder ownership and investing in growth”.

The varieties of alternative financing already range from venture capital, crowdfunding and equipment financing, to peer-to-peer lending, angel investing, factoring and revenue-based financing. Only the factoring market reveals the thirst for alternative means of raising liquidity. Researchandmarkets.com’s most recent estimate places the global factoring market at $3.8 trillion in 2024 and forecasts it to reach $5.3 trillion in 2028 at a CAGR of 7.8%.

The latest fintech-fueled innovations promise to further expand alternative financing, matching lenders and loan seekers through AI-generated algorithms.

Market financing

Marketplace financing means the company submits a loan request online, where it is assessed, rated and assigned an interest rate using the provider’s proprietary credit scoring tool. By paying a flat fee or subscription, direct marketplace lenders facilitate all elements of the transaction, including taking borrower applications, assigning credit ratings, advertising the loan request, matching borrowers with interested investors, the disbursement of the loan and the servicing of any loan payments collected.

A leading provider is Leverest FinTech, which launched its financing platform in 2021. With offices in Frankfurt, Berlin, London and, most recently, the US, it connects private equity investors, debt and M&A advisors and businesses with lending partners, including banks. and debt funds, anywhere in the world.

Leverest has so far completed over 100 transactions with 600 lenders in Europe, totaling over $1 billion managed through the platform. But in addition to being a lending marketplace, it is also a specialized tool for managing customer relationships.

Instead of tracking your relationship bank’s offers in an Excel file, “you always have up-to-date data to see who’s a good fit for your project,” says Janik Bold, COO at Leverest. “You always get the answer from the tool because we have so much data and so many lenders on the platform.”

The platform also aims to make the financing process more efficient, he adds – a particularly valuable feature for small and medium-sized business CFOSs looking to free up time and resources.

“We see a lot of parties that might have a market,” notes Bold, “but at the same time have internal consultants who need to help parties finalize funding. We took a different approach, using digital tools to enable a DIY solution. Both are really needed to put the power back in the hands of the CFO.”

Many CFOs have little time to manage a competitive process, which is why they tend to rely on only two or three funders. Argue in bold. “The process management software we offer, be it a data room or a dealcockpit, helps to send invitations, share and receive information. Having only one market, they would still have to manage the process manually.”

In addition to corporates, some of Leverest’s marketplace clients are larger investment banks that handle financing processes for private equity.

“They also use the platform because it also makes them much more efficient,” Bold says. “The entire investment banking industry is not yet digitalised. They are still using Excel and Outlook. They love our platform because they can save hundreds of hours of time.”

Blockchain simplifies loan approval

CFOs can expect more financial innovations to launch this year.

Blockchain is set to revolutionize the efficiency of lending transactions, consultants at Lexington Capital Holdings say in a recent report, and as the technology takes hold, it will redefine how transactions occur.

“The decentralized and transparent nature of blockchain can streamline the loan approval process, increase security and reduce fraud,” concludes Lexington. “Smart contracts, enabled by blockchain, have the potential to automate and accelerate various aspects of lending, making the entire process more efficient.”

AI-based credit scoring, the technology behind platforms like Leverest, will continue to simplify the risk assessment project. “AI is poised to revolutionize credit scoring, enabling lenders to assess risk with unprecedented accuracy,” predicts Lexington. This shift towards more accurate risk assessment will be particularly relevant for businesses with non-traditional credit profiles.

New and innovative market models not only allow CFOs to navigate the complex financial market more effectively, but also provide their clients with value-added process management technology. It is likely that the universe of suppliers will also undergo its own transformation; Lexington expects this year to see greater collaboration between traditional banks and alternative lenders, creating hybrid financing solutions that appeal to a broader spectrum of businesses.

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