It’s been quite the buzzword as of late. Yet, you get the feeling ten people will give you ten different explanations for what it is. Especially as it relates to the equipment finance industry.
But plain and simple, alternative finance is just as it sounds. Regardless of the industry: a nontraditional (alternative) way for consumers to obtain capital (financing). Public perception of mainstream alternative finance includes crowdfunding. Crowdfunding is when you raise money in the form of donations or investments from individuals via the internet. Another option is peer-to-peer lending. Loans that are backed by every day investors, known as peers. Both avenues for everyday consumers to access funds in a speedier manner than through a traditional bank.
But what does it mean for equipment finance companies?
While it’s unlikely a construction company will resort to crowdfunding to get their next piece of machinery for a project. The fact is that alternative financing is more prevalent in our industry than we realize.
Hera are a few different ways alternative finance is applied in the equipment finance industry. Keep in mind, this list is not exhaustive. Before too long, we may be dropping the alternative from the name altogether.
- Asset-based Lending – This type of financing uses a company’s assets (accounts receivable, inventory, etc.) to get a loan or line of credit. During times of rapid growth, asset-based financing should be used. It can also be used to provide a source of cash to get over a financial hardship, among other uses.
- Inventory (Floor Plan) Financing – Inventory, or floor plan, financing allows companies to finance the purchase of high-cost inventory through lines of credit. They can also get short-term loans that are secured by what is being purchased. As the inventory begins to sell, the loan is gradually paid off. This type of financing is ideal for retail or product-oriented businesses.
- Working Capital Loans – Working capital loans are short-term financing options used to finance a company’s everyday operations. Things like purchasing inventory or meeting payroll. Our customer Channel Partners LLC is running our ASPIRE solution to quickly process this exact type of loan. This is for small to mid-size businesses, with funds available in 2-4 days.
This is just a sampling of the recent activity we’ve seen at LTi. As lenders continue to innovate and define these nontraditional methods, interest in them will continue to grow. The question shifts from, “What is alternative finance?” to, “Can my lease and loan management system keep up with it?”