Historically, if an entrepreneur needed money for his business, he turned to his bank. Unfortunately, over time, many banks' decision-making processes have only become longer and more bureaucratic. Also, there are enough situations when bank financing is not the best solution for the company's needs. Therefore, more and more often, company managers understand that they must also be able to navigate well in bank financing alternatives. Such financing for companies includes bond issues (Storent, Elko Group, Eco Baltia), sale of shares on the stock exchange (Madara Cosmetics, Virši, Delfingroup) and alternative loan providers (Pure Chocolate, Peruza, Gandrs).

When banks are the best solution
Loans from banks are usually cheaper than from alternative lenders. This is due to the fact that banks can raise funds relatively cheaply through deposits. Therefore, a bank loan is a good basis for long-term financing, for example, for the purchase of real estate or production equipment. Also, bank financing is suitable in cases where there is no need to hurry with the transaction and you can calmly go through a relatively longer bank loan evaluation process. Banks also offer a fairly wide range of additional services (current accounts, currency exchanges), which can be useful in the day-to-day life of a company and convenient if they are located in one place.

However, it should be taken into account that every year the difference in the price of money for receiving in a bank or from an alternative lender has decreased significantly, especially for smaller loans (up to EUR 100,000). For example, corporate loans of up to EUR 25,000 from the largest Latvian banks cost from 12-20% per year, which is the same cost range as the leaders of alternative financing, such as Capitalia.

When to turn to alternative lenders
The trump card of alternative lenders is the speed and ease of the financing process, while many entrepreneurs value the flexibility of loan repayment terms. As a result, companies very often use alternative lenders as a supplement to existing bank loans, as well as in situations where financing is needed quickly or for a relatively short period of time (up to a couple of years). It is important for entrepreneurs not to miss out on business development opportunities, and a slightly higher cost of capital with alternative lenders often pays off handsomely in terms of time and resources saved. Alternative lenders (including crowdfunding platforms ) offer amounts from EUR 10t to 1 million. For larger amounts, bonds can be a good solution.

Why release bonds
Bonds, which are essentially a standardized loan, are issued either by companies that do not have access to bank credit (including fast consumer lenders, for example, 4Finance and Delfingroup) or those for which this financing complements bank loans (for example, Eco Baltia and Storent). . Instead of the company receiving funds from one financier (as it would be in a bank), bonds allow the company to turn to a wide range of investors, where each one finances part of the capital needed by the company. Organizing a bond issue is a fairly regulated process, so it usually does not pay off for amounts below EUR 3 million. The terms of the bonds are usually 3-4 years and they are not amortized - the money is returned to the investors either by refinancing the old bonds with new ones or by repaying them with other means available to the company.

In what situations is a stock exchange quotation appropriate?
Another financing alternative for companies is to sell their shares on the stock exchange to a wide range of investors. In this way, for example, Madara Cosmetics and Delfingroup have successfully attracted new capital for the development of the company. Using the stock exchange to attract financing is already worthwhile for relatively larger companies. Representation in the stock exchange also gives additional visibility and the opportunity to attract new customers, which, for example, has been successfully used by the fuel dealer Virši. The process of issuing shares is also quite strictly regulated, and the company has to account for additional reports and monitoring mechanisms, so companies usually go this way if the goal is to attract capital from EUR 5 million or more on the stock exchange.

Summary
In general, in recent years, the field of alternative financing has progressed very rapidly and offers very flexible and easily accessible capital, which is currently only slightly more expensive than the funds offered by banks. Financing is one of the daily working tools in every entrepreneur's workshop. Therefore, it is important for every manager to understand the arsenal of options and to be aware of which tools to use in which situations.