What is Specialty Finance?
Specialty Finance Firms provide funding to consumers and businesses for a variety of uses.
Specialty Finance can be defined as financing activity that occurs outside of the traditional banking system.
The focus in this type of financing is on providing capital to commercial and consumer borrowers which have been inadequately served by the mainstream banking system. Specialty Finance also covers financial assets such as litigation financing, buy-now-pay-later, accounts receivable, merchant cash advances, and equipment leases.
Following the financial crisis of 2008 A.D., increased regulation across the financial ecosystem coupled with unsteady market conditions has forced traditional financial institutions to alter their lending policies. This has contributed to increased capital requirements and risk governance on traditional financial institutions thus opening the door for Alternative Finance Providers to capitalize on the financial lending market.
Mainstream banking institutions have become burdened by their lack of flexibility.
Companies and individuals sourcing credit from specialist lenders, however, are often those having non-mainstream credit profiles.
Some companies characteristics such as leverage ratio or time in business do not necessarily fit within the credit parameters of traditional financial banking institutions.
Specialty Finance companies typically make loans to consumers or businesses that are underserved by traditional banking institutions.
Typically, Specialty Finance Firms are non-bank lenders that make loans to consumers and small to mid-size businesses that may otherwise have difficulty obtaining financing.
Businesses such as retail point-of-sale consumer installment lending, auto lending, payroll deduction loans, small ticket equipment lending and leasing, accounts receivable factoring, trade finance, merchant cash advances, supply chain finance and asset-based lending each fall into this category.
Specialty Finance Firms are typically much easier to work with than traditional banks.
Unlike traditional banks, Specialty Finance Firms tend to rely on their own due diligence of the business opportunity rather than ensuring that a borrower fits into the traditionally defined “credit format” of which many larger financial institutions mostly rely.
Specialty Finance Lending provides capital power and flexibility to fuel a clients’ growth.
Alternative Finance refers to forms of finance that are also outside of the institutional finance system of banks and capital markets.
Alternative Finance refers to non-traditional ways to finance and deliver development outcomes from private or public sources.
Alternate finance options can provide businesses with the help they need in managing their daily operations, achieving larger equity venture capital deals or by helping businesses complete large-scale projects, which otherwise would not be possible.
Need more information on Specialty/Alternative Financing and how your business can benefit from this type of financing?
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