Special forms of external financing: factoring, leasing and crowdfunding
Businesses may resort to special forms of financing such as factoring, leasing, crowdfunding (crowddonating, crowdsupporting, crowdlending or crowdinvesting) or cryptocurrency capital-raising efforts (ICO/ITO). Here is an introduction.
Factoring can be an attractive source of financing, especially for existing businesses that receive orders from their customers. It consists of selling receivables to obtain immediate cash inflows, regardless of the payment term, and to avoid the risk of default (which includes monitoring for such circumstances). This form of financing is less suitable for young entrepreneurs, as they have not yet amassed sufficient accounts receivable.
Leasing. If they do not want to raise foreign funds, entrepreneurs can opt to lease capital goods. This form of financing is particularly suitable for young, dynamic businesses with a high return potential but low equity.
Crowdfunding. Numerous online crowdfunding platforms enable Swiss SMEs to obtain financing directly from individuals, bypassing traditional players. They are active in crowddonating, crowdsupporting, crowdlending and crowdinvesting.
New SMEs may also opt for Initial Coin Offerings (ICO), which may also be called Initial Token Offerings (ITO). This form of financing is similar to a crowdfunding campaign, but in this case investors invest their virtual currencies to help companies pre-finance their product or service.