The recent conjunction of various factors such as limitations and barriers to accessing traditional financing with few banks nowadays, new Fin-Tech and the growing interest of investors in alternative investment opportunities, is leading small and medium-sized companies to seek alternative financing channels as an option to the traditional banking circuit, more accessible, flexible for their needs. This gives rise to a varied and increasing offer of alternative financing that is characterized by:

- Agility and speed in the study and approval of operations, shortening deadlines.

- Greater variety of entities and products to choose considering risk and debt.

- Reduction of dependence on banks.

- Flexibility: more responsive to special, complex situations.

Main alternative financing channels:

a) Business Angels: entrepreneurs or professionals with extensive career and experience in a sector, with available funds, which allows them to invest with better knowledge of the opportunities, threats, strengths, and weaknesses of a target (usually start-ups in early stages). They usually invest in equity – and also with participative, convertible or ordinary loans. They also provide knowledge, business contacts, etc. "smart money").

b) Crowdfunding: collective financing that, although originated in the form of donations, donations, currently presents multiple varieties:

• Donation based crowdfunding: Contributions without return or interest.

• Loans or crowdlending: A group of people lend their money with interest.

• Crowd-equity, equity-based crowdfunding. Investment crowdfunding: For the funds contributed, the beneficiary offers to participate in profits, results or in the capital of the company. The operation is subject to investment risk of losses or profits.

• Reward-based crowdfunding: in exchange for the contribution of funding, products or services are offered.

• Royalties: for the contributions, periodic payment is offered according to the activities and income of the company or project.

It is highly advisable to handle the legal and tax issues that these alternative funding forms trigger in different areas: for investors, personal data, taxation on investors and the company, vehicle, anti money-laundering, financial regulatory aspects, etc.

c) Direct Lending (Private Equity): Direct financing by private individuals or legal entities, in the form of a loan or credit or others (e.g. discounts on bills) either occasionally, non-habitually, or by professional investors, high-wealth private clients, and specialized searching for more profitable opportunities usually requiring guarantees - e.g. mortgage, pledge, etc. A rigorous analysis of the needs and a solid design of the operation in its financial, legal and tax aspects is a must, since the parties negotiate independently.

d) Venture Capital: Venture capital entities are well known, registered institutions and subject to supervision, they usually gather funds from their partners and investors that they use to finance companies of high potential and risk - depending on the growth stage of the target, they are called venture capital targeting early stage businesses (start-ups and scale-ups) and private equity for higher growing phases (e.g. expansion or consolidated). Financing is structured by taking minority stake in the target capital, complemented by subordinated, participatory loans and others. They look for opportunities for positive returns with the value increase the invested company, at exit through the sale of their stake within a certain period of time.

e) Regulated stock and exchange markets: It implies becoming listed on a regulated market, therefore, subject to information requirements and internal and external controls, while serving as a showcase for investors: Clearly targeting Small and Medium Sized Enterprises (SME) are:  BME Growth (formerly known as MAB Mercado Alternativo Bursáti, MAB) the equivalent of the general stock and exchange market though for SME, and the Alternative Fixed-Income Market (MARF) (Mercado Alternativo de Renta Fija MARF): for debt instruments such as bonds, promissory notes, debentures.

f) High Yield: Debt security issuances though with low ratings that accordingly offer high returns.  

___________________________________________________________________ __________

© amber legal & business advisors This document is a compilation of legal information for general use and should not be considered legal advice. For specific information and advice you can contact us at info@amberbas.com and www.amberbas.com

‍