Non-Bank Finance

Since mid-2013, more than €10.0m of working capital has been provided to the numerous Irish micro-medium sized businesses trading on Credebt Exchange®.  Instead of using traditional lenders, savvy business owners choose to sell their invoices on Credebt Exchange® because it is more convenient, straightforward and less costly.

Dealing with traditional lenders like banks, factoring or invoice discounting companies is both time consuming and costly. In addition, because the business owner is borrowing, there are endless requirements for documentation coupled with onerous liens and personal guarantees.  Regularly, due to the circumstances of the business owner, the personal guarantee is insufficient and funding is refused.  When all of these factors are combined with stringent lending criteria, the outlook for business borrowers continues to look bleak.

The decline in funding and overdraft facilities available from traditional lenders has resulted in several innovative newcomers.  These new non-bank finance providers are slowly changing the business landscape by meeting explicit, once-off funding requirements. Operating in niche sectors of the market, the importance of these new providers has largely been ignored by the establishment.

Some non-bank providers specialise in either short or long-term lending with others preferring to offer project or venture based lending.  Online platforms have also emerged that offer supply chain finance, ad-hoc invoice based lending and receivables discounting too.  Notwithstanding the importance of these new non-bank providers, a viable alternative to the bank overdraft or invoice discounting facility is still a primary requirement.

The overdraft or invoice discounting facility is an essential tool for most businesses. Where non-bank lending or ad-hoc trading in invoices may improve cash flow, it lacks certainty.  Business owners need absolute certainty on the availability of working capital to ensure continued operational success.  Nowhere is this more prevalent than in the micro-medium sized business sector.

Where these innovative non-bank finance providers can solve some liquidity issues, they do not offer, or attempt to replicate, the certainty provided by an overdraft facility.  Also, shrewd business owners will quickly identify that the fees and annual interest charges of 12-25% rule out the possibility of regular use.  In response to this, an alternative to the traditional overdraft or invoice discounting facility quietly entered the market last year.

The Credebt Exchange® non-bank finance replaces the overdraft seamlessly by providing intelligent finance with certainty.  As opposed to a lending model, the Exchange uses a selling model that dispenses with the liens and frustrations of the lending industry.  As a wholesale marketplace with both buyers and sellers, Credebt Exchange® is charged with ensuring liquidity and affordable funds availability.

Buyers on the Exchange are Investors with excess capital seeking a yield and business owners, as the Originators of invoices, are the sellers.  Credebt Exchange® negotiates and strikes deals on a daily basis by matching Investors’ buy to Originators’ sell orders.  To manage an orderly market, Originator sell offers are filled according to specific funding allocation dates that are published on the Credebt Exchange® website.  On each allocation date the Exchange agrees to provide the Originator’s total annual working capital requirement and thereby provides the funding certainty they need.

The working capital requirement of the Originator dictates the total value of invoices they must sell in any given year.  Unlike traditional lending models, the Originator is not required to sell their ‘whole book’ and nor do they provide any liens or personal guarantees.  The Originator simply selects the Debtors whose invoices they wish to sell and Credebt Exchange® buys them on behalf of Investors on the Exchange. As a percentage of turnover, funding costs tend to be 0.5% – 5.0% per annum.

With the Exchange projecting trade of €35.0m by year end, this is a compelling alternative to the overdraft or invoice discounting facility.  Any micro-medium sized business owner in need of working capital should certainly consider this new non-bank finance as an option.  Providing intelligent finance in today’s market without the need for liens or personal guarantees is a welcome and well-conceived alternative. Credebt Exchange® is quietly maintaining its orderly market whilst also having the potential to disrupt the traditional lending market beyond recognition.