7 alternatives to banks for financing SMEs and freelancers

When it comes to obtaining liquidity, loans from the Official Credit Institute (ICO) remain one of the most used options due to their multiple advantages, since repayment terms are high and interest is reduced. In general, ICO credits are requested through banks and collaborating credit institutions, so that the ICO provides the funds and these entities carry out all the processing and study of operations. It will be these banks, therefore, that approve or reject the applications according to the conditions imposed by the Institute.

The ICO lines are modified annually, as well as their conditions and requirements, although the variations are usually minimal between one year and the next. Currently we find the following open lines:

ICO lines opened in 2017

  • ICO Companies and Entrepreneurs 2017 › Financing oriented to freelancers and companies that make productive investments in the national territory and / or need to cover their liquidity needs. They can also request private financing and communities of owners for housing rehabilitation.
  • ICO Guarantee SGR / SAECA 2017 › Financing oriented to freelancers and companies that have the endorsement of a Reciprocal Guarantee Society (SGR) or SAECA that make investments in Spain or outside the national territory and / or want to cover their liquidity needs. The company that requests financing to make an investment outside of Spain must have domicile in Spain or at least 30% of Spanish company capital.
  • ICO Credit Commercial 2017> Funding aimed at freelancers and companies established in Spain who wish to obtain liquidity through the advance of the amount of the invoices from commercial activity within the national territory or to cover previous costs of production and processing of goods subject of sale in Spain.

2. Mutual guarantee societies

2. Mutual guarantee societies

Reciprocal guarantee companies, known by their acronym SGR, are entities that aim to improve financing conditions and facilitate access to credit for their partners, especially SMEs and freelancers. Although they also offer advice on economic issues, their main function is to act as guarantors so that their members can access credit lines and enjoy more advantageous conditions.

Reciprocal guarantee companies are made up of an indeterminate number of partners, which can be of two types: participants and protectors. The participating partners are those companies and freelancers who access the services offered by the entity, especially in terms of financing. For this they have to comply with the requirements and conditions imposed by the entity. Being a participating partner allows small entrepreneurs to benefit from credit lines and short-term financing without having to go to the banks.

The protective partners, on the other hand, are those persons, physical or legal, who contribute social capital and to the fund of the company for their use by the participating partners. These partners do not have to be exclusively private, as it is common to find within this section the autonomous communities themselves, provincial councils or chambers of commerce. Likewise, any private company, business association or investor can become a protective partner. Of course, you cannot be both a protective partner and a participating partner.

Any mutual guarantee company must be authorized by the Ministry of Economy and Finance after a previous report prepared by both the government of the autonomous community where it will have its registered office and the Bank of Spain. In addition, these entities are controlled and inspected by the Bank of Spain, as are the rest of credit institutions.

3. Venture capital

3. Venture capital

Venture capital is defined as the financing of projects and companies in the growth phase by venture capital entities. This system is especially useful for start-ups, since these funds are characterized by providing liquidity to companies with prospects for rapid growth and high profitability. Due to its incipient phase, investing in these projects also often carries a high risk.

In general, these private funds not only provide financing, but also get involved in the management of the company to increase profitability and benefits. In many cases these funds are made temporarily with a participation of the company and, once the project begins to bear fruit, they are withdrawn to optimize performance. This withdrawal is usually carried out by selling its stake to the start-up itself, to other investors or, even, to other venture capital entities.

This type of financing is strongly linked to companies in sectors with higher than average growth, especially in the technology sector, new technologies, software, applications, and so on.

 Financing alternatives for SME

4. Participatory loans


Participatory loans are a type of loan for companies and freelancers that have the particularity that the entity that makes the loan also ensures that it participates in the benefits of the company benefiting from the financing. The financed company, in return, will have to repay the loan with a fixed interest.

These loans generally have a long-term maturity (they can be canceled in advance in exchange for an increase of the same amount in the capital of the company) and lower interest rates than those offered by traditional banks. These interests, in addition, can be deducted in the tax base of the Corporation Tax.

Participatory loans can be granted by private companies or by public entities such as the National Innovation Company (ENISA), under the Ministry of Economy, Industry and Competitiveness. In any case, a series of requirements must be met to benefit from these lines, such as being an SME, having sound and audited accounts or presenting a viable project that does not belong to either the financial or real estate sector.

5. Express loans

Companies and freelancers seeking alternative financing can also use express loans, many of which can be managed directly through the internet. These entities do not offer fixed amounts, but instead open lines of credit and deliver a variable amount of money based on income.

To determine the amount of the loans, the financing entity will request a series of documentation to monitor the company’s income, such as the quarterly VAT settlement. You can also request the connection of the bank account of the company. With this data, a computer program calculates the amount of the credit line and gives an answer in just a few minutes.

6. Promissory note discount

This financing system is increasingly popular among SMEs and freelancers, since the company requesting the discount is getting liquidity using the income generated by its own activity. The procedure is simple: a financial entity advances to the company the amount of outstanding notes before payment due in exchange for a percentage and a commission. We are not talking, therefore, about requesting a loan, but about advancing the collection of a right generated by the beneficiary himself.

To deepen this service read our extensive article on the discount of promissory notes.

7. Factoring

Factoring or factoring works very similar to the discount on promissory notes. In this case, the company is not financed by discounting the promissory notes sent by a third party, but by doing the same with the invoices. In this way, a financial entity will advance the payment of the invoices to the SME in exchange for the collection rights and the corresponding commission.

To deepen this service read our extensive article on factoring.

These alternatives to the banks for the financing of SMEs and freelancers offer entrepreneurs different ways to access credit and achieve short-term liquidity without facing the hard and cumbersome procedures that are currently making it difficult to manage traditional banks.

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