How Alternative Business Finance can move to an Institutional Market


As we look at the Alternative Business Finance space and the Vendors to Watch, we know that some of these segments have vendors which originate assets direct for consumption by investors while others are intermediaries.  As I see it, the direct and indirect originators of assets are:

Direct Originators:

  • Vendors selling solutions direct to Large Companies
  • Software Providers/ Platforms providing services to Small Business
  • B2B Digital Marketplaces
  • Small Business Marketplace Lenders & Auction Markets

Indirect Originators

  • Vendors selling solutions direct to Banks

The Asset Advisors/ Brokers will play a critical role here as they connect investors (those institutions willing to take credit risk) via these platforms to companies (ie borrowers), typically without banks involved.   Asset originators may or may not take some risk, or as they say, have skin in the game. Most don’t, but some do.  Think of Lending Club or Quickbooks being a platform and data engine for others to take risk.

If we are to move to a more material institutional market, structures to transfer assets matter.  Many current models do not embed collateral transfer or perfection of interest services in their platform.

We know there is a massive movement to create non bank entities because of the dislocation of capital and credit markets.  Institutional Investors will require fiduciaries to buy these assets.  More and more asset managers are setting up teams to scour for trade receivables.

Right now, there is not a deep level of understanding what these platforms do (think eInvoicing or eProcurement networks).  For example, a technology vendor may act as fiduciary for their client (ie, the obligor) but have no payment obligation towards the investors over and beyond the amounts received from the obligor. Investors take risks, for example, on if the platform executes properly.

Investors buy assets that are accounting driven or inventory driven – form of collateral – that are tied into balance sheets.  For a material market to develop, the information about those assets is powerful – what state they are in, who physically owns, that information is not on a balance sheet.  Right now, the vendor community is still in a learning phase when dealing with the investor and asset manager community.

Investors, I would be interested in hearing from you as we develop our Alternative Business Finance.  What do you want to know?  Please contact me at dgustin at I would love to hear from you.

Please follow David Gustin on Twitter @TFMatters

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