Flexible financing: solutions to take your business to the next level

In an environment where flexibility is key, the ability to obtain financing that keeps pace with a company’s steady growth not only provides necessary financial backing, but it also enables startups to efficiently manage their growth and deal with unexpected challenges. As a result, flexible financing is emerging as a crucial resource in today’s dynamic business landscape.

What is flexible financing and what are its advantages?

Flexible financing is a dynamic approach to raising capital that adjusts to a company’s specific needs at any given time. Unlike more rigid financing methods, flexibility allows terms such as timelines, interest rates and payment structures to be tailored to the company’s specific circumstances.

Among the main advantages of accessing flexible financing, the following stand out:

• Adaptability to changing needs. It allows startups to adapt to changing business circumstances, adjusting financial conditions (interest rates, timelines, repayments, etc.) as needed.
• Facilitates growth. By providing access to capital in a flexible and customised manner, flexible financing facilitates growth for companies, enabling them to take advantage of strategic opportunities and expand in a controlled manner.

Flexible financing solutions

Choosing financing depends on several factors, such as a company’s specific needs, its development stage, industry and growth strategy. However, there are some models and solutions that are important to keep on the radar.

Venture debt

Venture debt is a form of financing specially designed for companies in rapid growth stages, such as startups and scaleups. Its main advantage is that entrepreneur’s and shareholder’s  shareholdings are not significantly diluted: it is a loan made up mainly of debt that is repaid with interest, plus a small portion aimed at acquiring shares in the company.

BBVA Spark offers this venture debt solution to provide a way for entrepreneurs to raise financing without reducing their ownership in the company to a large extent. This can be crucial for financing expansions and strategic projects without sacrificing corporate control.

Growth loans

This type of loan is intended for companies with a mature, profitable business and high growth prospects, seeking to support growth and international expansion. With growth loans, shareholders can maintain control over the business without seeing their shareholding diluted, since the entities providing the requested capital do not acquire shares in the company.

Another feature of this financing alternative is that it can integrate support from experts and professionals. These professionals offer the necessary support to carry out the expansion strategies of high-growth companies, and provide access to new contact networks. BBVA Spark is an example of this, offering such solutions backed by specialists who understand the nature of the business and provide expert guidance.

Revenue-based financing (RBF)

This is a type of financial capital for startups and scaleups that is returned to the investor in the form of periodic payments linked to the company’s revenue. In the RBF model, the approach aligns payouts with actual company performance, which can be especially beneficial during periods of fluctuating earnings. It is a way to increase working capital, acquire new customers, scale the business or finance international expansion.

Peer-to-Peer (P2P) Business Lending

Peer-to-peer lending, and specifically, business-to-business lending, is a relatively new alternative financing model, but one that has been growing rapidly in recent years. It allows companies to obtain financing directly from investors through online platforms. In its most orthodox form, the P2P lending platform acts as a marketplace that matches borrowers and investors, so that if the loan is not repaid, the risk of financial loss rests with the investor and not the platform, according to a report from the University of Cambridge.

Flexibility in loan terms may depend on the platform and the specific agreement between the parties, but in general, P2Ps offer more flexible terms compared to conventional bank loans, especially in interest rates, the European Commission explains.

Advance payment of invoices

Advance payment of invoices is an advance payment from a customer on account of a purchase or the contracting of a service. It is a short-term financial solution that compensates for the temporary mismatch caused by customers paying in instalments. Its flexibility lies in the fact that it facilitates immediate access to funds by converting outstanding accounts into cash, so correcting or mitigating cash shortages.

The other side of the coin: interest and risks

Although flexible financing has numerous advantages, it is crucial to address the other side of the coin: interest. While flexibility is important, financial terms should be carefully reviewed to understand the associated costs.

Interest risk in the context of flexible financing refers to the possibility of facing additional costs or financial challenges due to variable interest rates, complex loan structures or unfavourable terms. For example, if interest rates increase, the company’s financial burden may also increase, which could affect cash flow and profitability. Even with low interest rates, other terms of the agreement, such as commission, service charges or other associated costs, may increase the total cost of financing.

On the other hand, depending on the type of financing, an excessive accumulation of debt can put pressure on cash flow and affect the company’s ability to meet its financial obligations. In addition, depending on the terms of the agreement, investors may put pressure on the company to meet certain financial and performance targets, which may create additional stress.

Another factor to take into account is changing market conditions: companies could face challenges if economic conditions become less favourable. To mitigate these risks, it is advisable to diversify sources of financing, carry out sound financial planning and, when seeking financing, negotiate favourable terms, as well as understand the associated conditions, especially interest rates.