The Future of Business Banking
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If you’ve read our previous series on Open Banking, you’ll know that the way business operators access banking services and business finance is set to change with the emergence of concepts like BaaS, Open Banking and DeFi.
The delivery of traditional bank debt finance to businesses will become increasingly automated and standardised. Private Capital and Equity Finance will emerge as possibly a move flexible alternative for those business operators seeking investment.
Imagine a cross between a dating website and a crowd funding website for businesses. Imagine a site or portal that brings together business operators who require finance with investors who are looking for businesses to invest in?
Business operators will however need to better understand the type of information and analysis that investors (be they debt investors or equity investors) will be looking for. They’ll need to be well prepared, be clear about what their strategies are, and be able to articulate why it would make sense for an investor to invest in their business.
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Currently the most common source of debt finance for most businesses is from a bank or finance company. Very rarely does debt finance come from other third-party-investor sources. That is likely to change.
Over the past 35+ years, following banking industry deregulation and in response to competitive pressures, banks and finance companies have absorbed more and more of the responsibility for data and information collection, and the analysis of financial performance and of the various business and credit risks, including debt servicing assessments, from their business clients.
Growing regulatory oversight and intervention, along with evolving online technologies, will see banks push that responsibility back to business operators.
Those same technologies will also enable non-bank, and non-finance co., debt investors (i.e.: more obscure sources of debt finance) to more easily connect with businesses requiring debt funding.
These evolutions will mean that it will become increasingly important for business operators to more clearly present their strategies and analysis of their financial performance, and the underlying business risks (particularly the 5 C’s of Credit*) and their ability to meet proposed debt servicing commitments.
*[https://lnkd.in/gdSA8SUC]
If business operators want better outcomes from their debt investors, both now and increasingly in the future (whether those debt investors be a bank, or some other third-party debt investor), it will become almost critical that they can clearly articulate their business strategies and how they expect to achieve them. And furthermore, why it makes sense to peruse and support those strategies, both for them and their debt investors.
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In the coming years, third-party-sourced Equity Finance will become a more common form of business finance for growing mid-sized businesses (certainly more common than it is now).
If you’ve read our previous two series on:
- Open Banking’ https://lnkd.in/gpGRGKmg ; you’ll know that the way in which banking services are delivered and accessed is set to change; and
- Types of Business Finance’ https://lnkd.in/gS7_m79e ; you’ll know that Equity Finance has the potential to be a more flexible form of finance for growing businesses.
Whilst there will always be businesses requiring financing, there will also be those looking for investment opportunities.
New online technologies are emerging that will make it easier for those business operators seeking finance, and those looking for businesses to invest in, to find each other and come together.
Whether seeking finance from more traditional investment sources (e.g.: bank debt), or if seeking finance from increasingly accessible Equity Investors, business operators will need to better understand the type of information investors are looking for, and how to present that information in an engaging and compelling manner.
Investors (be they debt or equity investors) are business partners and should be treated and respected accordingly.
Business operators should be clearly articulating to investors (i.e.: business partners), what the businesses strategies are, and why it makes sense for the investor to invest in their business!