The alternative finance industry is in a major transition nowadays. The incorporation of new platforms has slowed down and many smaller platforms have exited the market. Competition, both internal and external, has increased with the easing of macroeconomic conditions in many developed countries. High profile incidents within certain segments of the market led to calls for a greater level of transparency within the industry with many platforms changing their operational practices. If you are planning to start your own alternative finance company, this business plan is for you.
Alternative Finance Business Plan
Alternative finance refers to financial channels and instruments that have emerged outside of the traditional financial system such as banks and capital markets. Some of the alternative financing activities include equity crowdfunding, peer-to-peer consumer and business lending, reward-based crowdfunding and invoice trading platforms. In this section of the business plan there is a complete description of how the business work, how it gets its customers and the whole idea behind the company.
The alternative finance industry is constantly growing in size and it has become a significant funding option for businesses seeking capital. Traditionally, a business’ first funding option would be a bank, but with credit tightening policies that happened during the most recent financial crisis, alternative finance companies have entered the market and have firmly made their mark, offering businesses on opposite ends of the scale a greater depth of funding choice. In this section there is further explanation of the market industry and how the company plans to position itself within its target market, placing itself as a solution or an alternative to traditional ways to get funded.
Alternative lenders offer a simpler and quicker lending process than traditional lenders like banks; there’s also less bureaucracy when going through alternative sources, ensuring a considerably smoother and more efficient process. Here, there is a complete explanation of the company’s processes required to maintain and exceed these standards including credit reviews, information gathering and the functionalities of online-based platforms.
In the marketing plan section of the business plan you will find how the alternative finance company plans to reach its target segments through different marketing strategies that will allow it to grow over time as a reliable source of funding for both individuals and businesses.
An alternative finance company is one that specializes in making secured or unsecured loans to both individuals and businesses. Typical transactions include home equity loans, vehicle loans and installment loans for the purchase of major household appliances such as refrigerators and washing machines. Commercial clients include contractors, retail stores and medical or legal professionals. In this part of the business plan you will find a description of the potential customers for the alternative finance business.
The promotional strategies in the business plan will include magazine advertisements and community based marketing (networking, sponsorship and participation in seminars) to increase visibility for the alternative finance company the services it offers. The advertisements will be a steady way for people to become aware of the brand and what it does, along with social media and other strong digital marketing efforts to fuel the business.
This chapter of the business plan develops financial projections for the first three to five years of operation to understand how the alternative finance business is likely to fare in the market. The projections include month to month income statements for the first year, and quarterly statements thereafter, as well as projected balance sheets and cash flow statements.
In this section of the alternative finance business plan you will find a description of the main sources of revenue for the company and the important financial assumptions the business is taking to reach those figures. The main sources will usually come from interest earned, fees and commissions, depending on the services provided.
The business plan financial section presents a list of the major expenses for the alternative finance business and the strategies to keep them in balance in order to maintain the profitability of the company, these include rent, utilities, wages, software licenses and web development costs.