Alternative financing for investing in the real economy

Usually, when we watch the news or read a newspaper or digital media, we consume macroeconomic data. The growth of GDP, the evolution of inflation, the behavior of the labor market... These big figures encompass the daily reality of millions of businesses, workers, and families. The people who make up the country's real economy. According to the business daily Expansión, the real economy is the «part of the economy related to the production of goods and non-financial services». María José Aznar, a professor at the University of Granada, expands on this definition by stating that the real economy is made up of the economic processes that «are developed through the production of goods and services, their distribution through trade and their consumption». The farmer who plants the potatoes, the distributor who brings them to the companies in the hospitality industry, and the restaurants that sell them as ingredients in their dishes are all agents of the real economy. All of them often need financing channels to meet the needs and objectives of their businesses. In addition to the traditional financial sector, real economy players today have alternative financing models that can help them meet their liquidity needs. Let's see how alternative financing can be used to invest in the real economy.

Real economy vs.? Financial economics

Classic economic studies have historically differentiated between the real or productive economy, which we have just discussed, and the financial economy. The latter is made up of the processes of exchange of capital goods such as credits, shares, or bonds. The two spheres do not function as watertight compartments but are strongly related. Thus, what happens in one profoundly affects the other. For example, the financial crisis of 2008. The collapse of Lehman Brothers, a giant in the financial economy, eventually triggered a profound global crisis that wiped out thousands of businesses in the real economy and hurt millions of people. While the financial economy depends to a large extent on the expectations generated around the real economy and those macro-figures we talked about at the beginning of this article, the real economy needs the financial economy to be able to meet the costs and expenses involved in many of its activities. Therefore, we do not find ourselves in a scenario of confrontation between one part of the economy and the other, but in one in which synergies between the two are key to the progress of the economy and society.

Responding to the financing needs of the real economy

Let us return to the example we used at the beginning of this text. The farmer who grows potatoes has suffered a bad year as a result of the drought. He has harvested less than half as many kilos of potatoes as in a normal year. On the other hand, his operating costs have risen due to soaring inflation. How does he cope with these costs? Does he have to close down a business that has proven year after year to be perfectly profitable? Let's think about a more favorable scenario. The farmer's business is going strong, so he decides to invest in it by buying more land and introducing more sophisticated machinery that will help increase the productivity of the work he does in his business. However, he does not have sufficient liquidity to meet these expenses. What does he do? Does he miss a golden opportunity to consolidate and grow? Does he reject the incorporation of more efficient technology? In both cases, the answer to your needs lies in the field of financial economics. Today, following digitalization and the development of advanced software and solutions, the financial economy is not only made up of the traditional banking sector and the stock market, but multiple innovative projects have introduced new financial products within the reach of thousands of investors and, also, of any kind of business in the real economy.

You choose which business you invest your money in

In crowdlending, crowdequity, or crowdfactoring marketplaces, companies and freelancers who build and constitute, daily, the real economy can obtain financing for their businesses in a short time and with characteristics that fit what they are looking for. For example, a freelancer can finance the invoices he has issued, but has not yet been paid on platforms such as Inversa Invoice Market and, thus, obtain liquidity in a few days. While our hypothetical farmer can get a loan through the crowdlending model. Both the invoice and the loan will not be financed by a bank, but by people, savers who are looking to get a return on their money and, incidentally, to finance the real economy. Precisely, here are enclosed several of the keys that differentiate alternative financing from traditional financing and that make their models the perfect solutions to finance the real economy.

1. Timing. In a changing world, banking bureaucracy slows down the ability of companies and the self-employed to obtain financing. In contrast, alternative financing marketplaces can provide liquidity to businesses in extraordinarily short timeframes.
2. Investors. In recent times, a concept of great social and economic importance has been gaining ground: ethical investment. In other words, people who want to get a return on their money and make a profit, while betting on projects that are in line with their values and that serve to strengthen the real economy.

Infusing liquidity into the real economy

Through alternative financing, investors manage their money with maximum freedom, having at their disposal all the information about the product they are going to acquire... and about the business behind it. Never before in history have citizens been able to decisively support the strengthening of the real economy through financing. Alternative financing models and projects expand the range of products that businesses in the real economy can choose to finance themselves and successfully meet their needs, challenges, and strategic plans. Digitalization has transformed the way we live, work and run our businesses. So it should come as no surprise to anyone that it has also revolutionized the way we invest our money... and access to finance for real economy businesses and the self-employed. The real economy and the financial economy are not watertight and isolated compartments. An alternative financing has come to remind us of this, weaving close ties between the two and balancing the relationship between businesses that need liquidity and investors who are willing to provide it.