Alternative financing: everything you need to know from A to Z

The search for financing is a crucial step for any entrepreneur. Have you considered some alternative financing options ?

What is alternative financing?

This is financing outside the traditional banking system. Alternative financing offers flexibility and simplicity . Among them, Income Based Financing, factoring and BNPL stand out.

These options are not anecdotal: they are firmly rooted in the entrepreneurial landscape. SMEs in Europe benefit from 5 billion euros a year alternative financing a 10-fold increase in 5 years.

Hero is actively involved in this field We offer tailor-made solutions to companies' financing needs.

First source of alternative financing: factoring (accelerated payout)

Factoring, also known as accelerated payout and factoring, is an invaluable tool for companies seeking to optimize their cash flow .

In fact, almost half of business bankruptcies are allocated to a poor cash management .

How does factoring work?

Factoring enables companies to sell their invoices to a third party to obtain advance payments.

Banks have historically dominated this sector. They mainly target large companies and require all invoices to be sold, with rates fluctuating between 1 and 3%. of the invoice amount.

Hero Cash, the right solution

Faced with this challenge, Hero Cash is emerging as a valuable alternative. We pay your bills instantly and offer payment facilities to your customers.

La managing disputes and collection are taken care of by Hero, and you are free to choose which invoices to finance, with no minimum amount or commitment. The right solution to ensure sound, flexible cash management .

Le BNPL (Buy Now Pay Later)

BNPL offers customers the possibility of acquiring products immediately and deferring payment.

With fees ranging from 2 and 8% of total purchase A thorough assessment of the terms and conditions is essential.

The bicycle brand Canyon is a perfect example of the BNPL's application, facilitating access to top-of-the-range bicycles thanks to staggered payments:
example of BNPL: Canyon bikes

Hero also offers BNPL on flexible and advantageous terms .

BNPL can be a crucial strategy for boosting sales, improving cash flow and optimizing the customer experience.

Third source of alternative financing: crowdfunding

Le crowdfunding is another viable option in the alternative financing ecosystem, representing a financing option for 3 billion for small businesses worldwide, according to the World Bank.

Types de crowdfunding

Crowdfunding comes in several forms:

• Le donation-based crowdfunding where contributors support a project with no expectation of return

• Le reward-based crowdfunding offering gifts to contributors

• L' equity crowdfunding which allows you to acquire shares in the company (we'll come back to this later)

• Participatory loan financing, where money is repaid with interest

A striking example is the Pebble connected watches raised $20 million on Kickstarter .

Advantages and disadvantages

Crowdfunding is appreciated for its accessibilité and its flexibility . But success is only possible if the campaign is a success.

Some companies have propelled their beginnings thanks to crowdfunding, while others have fallen short of their financial targets and had to abandon their ambitions.

When you know that nearly 9 out of 10 business loans are accepted by banks crowdfunding is not very competitive in terms of success, compared with traditional banking.

Which crowdfunding platforms are popular?

Kickstarter and Indiegogo are two of the giants of crowdfunding. In the area of peer-to-peer lending, platforms such as LendingClub , Prosper , Younited and Finfrog have emerged, each with its own specific features.

The choice of platform depends on project type and specific needs. Consideration must be given to target population the associated costs and the type de crowdfunding to maximize your chances of success.

Equity financing

Let's focus in particular on equity financing, or crowdequity.

Le crowdequity involves entrepreneurs raising funds in exchange for a share in their company.

Platforms such as Tudigo , Caption , October , Wiseed and Happy Capital have specialized in this industry, offering a marketplace where entrepreneurs and investors can meet.

L' benefits for contractors ? Access debt-free funds. And for investors ? They can expect average return on investment of 10.48 (last 20 years in the USA). However, the crowdlending default rate is around 2%. .

Fourth alternative financing method: Revenue-based financing

Le Revenue Based Financing (RBF) is emerging as a flexible option in the e-commerce and SaaS sectors.

What is Revenue Based Financing?

RBF is a type of credit where repayment amounts and borrowing capacity are based on a percentage of monthly sales .

This means that reimbursements fluctuate according to the company's performance. Notable players in France include Karmen , Morino and Unlimitd offer this type of financing. Silvr is a significant example, having raised 112 million euros .

Advantages and disadvantages of RBF

One of the main advantages of RBF is the flexible repayments . This minimizes financial stress during slack periods.

What's more, there's less capital dilution than with a fund-raising operation.

The case of LXH

The co-founders of LXH

To illustrate the application of RBF in concrete terms, let's take the example of a brand of caps. LXH Thanks to this financing method, sales were multiplied by 6 in 1 year .

Asset-based financing: what's the difference?

Whereas RBF focuses on a percentage of sales to determine reimbursements, ABF (asset-based financing) is linked to the company's assets.

RBF is therefore a viable financing option for fast-growing companies. ABF is suitable for more stable SMEs.

Fifth alternative financing: business angels

Business angels are wealthy entrepreneurs who invest in startups. With an average investment ticket of between 5,000 and €50,000 They are a valuable source of initial financing.

Figures like Pierre-Edouard Stérin (founder of Smartbox), Michaël Benabou (founder of Veepee) and Eric Larchevêque (Ledger and Coinhouse) epitomize the business angel profile. They not only invest financially, but also provide mentoring.

Networks such as France Angels et Euroquity facilitate connections between these investors and entrepreneurs seeking financing.

How to attract them

To attract the attention of a business angel, you need to demonstrate not only your company's financial viability, but also its potential for innovation and growth.

To finance your startup, you'll need :

• Meticulous preparation

• A convincing presentation

• From a significant, attainable market potential

• An excellent value proposition

Investment funds

Kima Ventures, Xavier Niel's fund

There are many different types of investment fund, each with its own specific selection criteria. Global giants such as Sequoia Capital and Andreessen Horowitz dominate the landscape, with market capitalizations in excess of $30 billion each.

In France, players such as BPI France , Alven Capital and Partech are benchmarks in the venture capital field. Their investments can range from From €20,000 to several million .

Individuals such as Xavier Niel have gone beyond the traditional role of business angels to create their own funds. Such is the case of Kima Ventures a benchmark in France.

Joining forces with an investment fund offers many advantages. considerable benefits including access to significant capital and a network of experts and mentors.

However, there are risks. Entrepreneurs need to be vigilant about contractual terms and clauses that may affect their control over the business. The involvement of specialized lawyers to master the complexity of contracts is often essential to protect your interests. This is an additional cost.

Entrepreneurial competitions

These contests come in a variety of formats. These include :

• Talents BGE

• Little Thumb

• i-Nov

• Springboard

The rewards vary, but often include a small amount of funding, opportunities to mentorat and a visibilité more.

How can you get involved?

Participating successfully in these competitions requires rigorous preparation. The 3 most common tips are :

• the development of a pitch deck convaincant

• the design of a business plan solide

• control of oral presentations

Leasing

Leasing offers an interesting alternative for companies looking to optimize their asset management.

How does leasing work?

Le leasing is an agreement enabling companies to use assets, such as equipment or premises, without necessarily purchasing them: a monthly contribution must be paid. A purchase option is valid at the end of the contract. It is also known as leasing.

Benefits and costs

This type of contract enables capital preservation, offers flexibility in accessing expensive assets and may also offer tax advantages. Although it may reduce initial outlay, the total long-term cost may be higher than buying directly with credit.

Financial leasing

Financial leasing is a mechanism enabling companies to rent assets for a fixed period, offering financial and operational flexibility.

What's the difference between financial leasing and financial leasing?

Financial leasing is often more flexible, with a rental focus. In financial leasing, the company has the option of purchasing the asset at the end of the contract.

Micro-credit

Micro-credit is characterized by the underwriting of small loans to entrepreneurs who have no access to the traditional banking system. In this area, the ADIE and Créa-Sol stand out as two major players.

Micro-credit doesn't just provide funds: it is often accompanied by advice and support to help entrepreneurs who are often novices.

Government grants and subsidies

Certain grants can be used to finance your activity:

ARCE

L' ARCE (aid for taking over and starting up a business) allows entrepreneurs to opt for a lump-sum payment of their unemployment benefit, equivalent to 60% of rights restants.

ACRE

L' ACRE offers a exemption from social security contributions in the first year, crucial support for startups in their early stages.

Honorary loans

Visit honorary loans are preferential loans without personal guarantee or interest, ranging from 1 000 € à 90 000 € and a duration of 2 to 5 years . Establishments such as Initiative France and Réseau Entreprendre as well as certain local authorities.

CFE exemption

In the first year, companies can benefit from a CFE exemption (Cotisation Foncière des Entreprises), lightening the tax burden.

IR-PME

La IR-PME tax reduction provides an income tax reduction of 18 % for capital subscriptions to SMEs. This is an excellent argument for encouraging investment in your company.

Conclusion: How do you choose the right alternative financing for your business needs?

To choose the best alternative financing, you need to consider the advantages and disadvantages of each option:

Other articles on the same subject:

• Small business financing: how to finance your small business?

• Reverse factoring: what is it?

• Business cash loans: optimize your cash flow

• Revenue based financing: what exactly is it?