CFOZone.com - The Network of Corporate Finance

By Nick Lord

CFOs know how to follow the money. At the same time that the capital markets have come roaring back, alternative sources of finance are also growing in popularity.

In fact, at last week's Association of Corporate Treasurers (UK) annual conference in Manchester, UK, the best attended sessions were on the subjects of alternative funding sources in a post-crisis environment.

Of most interest was the session on supplier chain finance for those companies without access to non-bank finance, according to Stuart Siddall, the CEO of the Association. This was especially important for companies that are excluded from the bank market due to either their size or the fact that banks still avoid cash flow based lending, especially during these difficult times.

They still want to lend to companies that have assets as collateral, which can be difficult for non-manufacturing or heavy industrial companies.

Indeed, it is a curious outcome of the crisis that the drive for a better banking system is forcing bank clients to seek finance elsewhere. The drive for transparency and standardization in the banking system does not provide the flexibility and discretion that many companies are seeking.

Moreover, the move to strengthen the banking system necessitates that less money is available for lending, the fundamental dichotomy inherent in banking reforms within wider economic reforms.

Therefore a natural result will be the development of alternative funding sources (such as supplier chain finance). However, this should be a cause for pause: After all, it is usually alternative sources of finance that cause trouble when they go wrong, such as using CDOs for bank capitalization in the recent crisis, or options trading programs in the 1987 crash.

Nevertheless, even with a healthy skepticism of innovation, CFOs have a fiduciary duty to look at all possible ways of securing the finance they need to run their businesses. In the UK at least, it looks as if they are so doing.

Comments (2)

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written by Mary Bruce, May 11, 2010

Thank you for point out the irony of the current situation. Perhaps if enough customers seek alternative financing the banks will rethink their own strategies about lending to the "collateral-light" businesses that could fuel more economic growth.

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written by Ilene Richman, May 11, 2010

People who have money in banks that do not lend for business should remove their money and go to banks that do loan for business purposes. Or they should take the money and invest in Treasuries, CD's, bonds. Banks that have been kept afloat due to the mistakes of all govts should suffer the same consequences of removal of money from people who bank at these institutions. Let's see what happens when these manipulating banks loose banking customers.

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