Most non-investment-grade companies require access to some form of credit to manage their business. Traditionally, companies would use asset-based lenders, factors, commercial finance companies and revolving lines of credit, secured or unsecured by some collateral, to manage their credit needs.
But new options have begun to challenge these conventional methods. Alternative business finance is providing ad hoc, incremental and permanent forms of capital to companies. The potential to displace, substitute or combine existing forms of credit with these new options is now a real possibility.
Introducing the Alternative Business Finance Index
The alternative business finance space, however, is an area of much confusion, because these options provide an overwhelming amount of new data compared with what was previously available. The acceleration of innovative consumer credit initiatives, particularly those that have gone public, has yielded deep insights around new forms of business finance. For example, one can now easily look up Lending Club’s growth rates, delinquencies, chargeoffs and other data around small business lending.
This is not true with various non-bank, non-public business-to-business finance initiatives. They are opaque with numbers. Their business model structures can be confusing. The way they generate assets for non-banks is often unclear. The business-to-business trade credit world is one of private commercial agreements, where limited real data is made available.
New forms of working capital, trade finance and trade credit have attracted a significant amount of investment, but this early interest has also led to hype and misconceptions. Trade Financing Matters seeks to bring clarity to this space with our Alternative Business Finance Index and our 2015 Watch List. This new index will provide the first true segmentation and explanation around alternative business finance options, identifying players generating assets to be financed – either by companies themselves or third parties – and how are they doing it.