Launching in September, Debitum Network is a global ecosystem that connects small businesses to international investors and sets new standards for alternative finance options.
For small businesses, obtaining finance from traditional banks can be a struggle – particularly recent startups and those with low credit scores. According to some estimates, banks reject more than 50% of loan applications from small and medium sized enterprises (SMEs). In developing economies, the picture is even worse: a 2017 report from the World Bank estimates that 70% of small, medium and micro-enterprises are unable to access the credit they need.
Even for those lucky enough to have their loans approved, the outdated practices of traditional banks can mean a mountain of paperwork and onerous requirements – leaving business owners with less time to do what they do best: run their business.
Slow approval times and a conservative attitude to risk are two more reasons why small business owners are turning their backs on conventional banking and opting for the convenience, speed and flexibility of alternative finance (AF). Last year in the UK, for example, business borrowing via AF rose 43% year-on-year. Recent figures from the World Bank estimate that the global alternative finance market for small businesses could grow to as much as $90 billion in 2020, from its current figure of $34 billion.
Welcoming the growth in AF, OECD Secretary-General Angel Gurría said in February 2018: “Challenges persist in SME access to finance, but this visible growth in financing alternatives is very positive news.”
One of the most well-established forms of Alternative Finance is crowdfunding. Popularised by sites such as Kickstarter and Indiegogo, crowdfunding allows businesses to raise funds from a group of investors – with the offer of some kind of benefit in return. This could be early access to a newly-developed product when it’s launched, or to some form of discount.
‘Equity crowdfunding’ is a form of crowdfunding in which, in return for their investment, backers receive equity in the business. Where traditional IPOs require investments in the millions, investors in equity crowdfunding can start with as little as $100.
Equity crowdfunding sites such as RocketHub, Fundable and Crowdfunder can help entrepreneurs get a big idea off the ground - but relatively high fees often make this an expensive way to borrow, particularly for those who don’t achieve their target. Depending on the provider, businesses may also not be able to access the money raised until their campaign is over.
Asset-based lending is another option. This involves using your business’s assets as collateral – a good way to free up capital that’s tied up in existing assets such as property or inventory, or to buy assets such as new equipment. Benefits include relatively low rates of interest. The downsides? If you’re raising capital for a big purchase, asset-based loans will usually only fund 70-80% of its value, so you may still need a big deposit – and, of course, until the loan is repaid, the assets remain the property of the lender.
Another option is to borrow money against your outstanding invoices. This can even include so-called ‘factoring’ – effectively allowing the lender to act as your credit control, chasing payments in return for a percentage. Borrowing money against invoices is a convenient way to ease cashflow for businesses that don’t own assets – but it really only works in the B2B sector, not for businesses that directly serve customers.
Peer-to-peer (P2P) lending, perhaps the biggest growth area in AF, began in 2005 with the launch of UK-based Zopa. P2P lending connects borrowers with individual investors who can choose to offer all or part of a loan. Multiple P2P services such as Prosper, Funding Circle and Upstart, the brainchild of ex-Googlers, have seen the global market generate a total of $200 billion of investments in 2016 alone. But while P2P borrowing is already well-developed in Europe, the US and markets such as China, however, many parts of the world are still to feel the benefits of the FinTech revolution – and few providers are tailored specifically to the needs of small businesses.
With the launch of Debitum Network on September 3rd, 2018, small businesses from all over the world will be able to access finance as part of a balanced ecosystem that will connect local infrastructure with global investors.
Unlike other P2P lenders, Debitum Network is dedicated to serving the needs of small businesses. Uniquely, the service uses blockchain technology to automate its processes, while transactions are carried out in traditional fiat currency – making it accessible to small traders inexperienced in the crypto-currency market.
While business bank loans often have a maturity of 1 to 5 years, Debitum offers shorter payback times of 2 to 6 months – providing businesses with timely injections of cash when they need it.
With a truly decentralised structure based on blockchain technology for complete transparency and security, Debitum Network removes many costly overheads to offer significant lower fees to borrowers. And without the bottlenecks that slow down conventional bank loans, Debitum promises to offer loans faster – sometimes in as little as an hour.
Re-disseminated by The Asian Banker