Welcome to the thirtieth Pari Passu newsletter,

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Today, we will learn more about:

1. Alternative Financing

2. Oaktree Quarterly Letter

Alternative Financing

Alternative financing is non-traditional methods of capital raising for a litany of purposes. Unlike conventional approaches, such as bank loans or venture capital, alternative financing explores innovative ways to support individuals or businesses that might have difficulty accessing traditional financial channels. Examples of alternative financing include crowdfunding platforms, where many people contribute small amounts to fund a project or business. This is the most popular form of alternative financing for early-stage, high growth startups looking for early development capital. Peer-to-peer lending is another method, where individuals borrow directly from others without involving a financial institution. Also, alternative financing may involve angel investors, who invest their own money in startups or small businesses in exchange for equity or ownership stakes. Moreover, there are various grant programs and competitions that provide funding to innovative projects and social enterprises. Crypto and blockchain technology have also opened new possibilities for alternative financing, with Initial Coin Offerings (ICOs) and Security Token Offerings (STOs) enabling businesses to raise funds by issuing digital tokens.

Common categories include P2P/Marketplace lending, which is individuals or investors providing a debt-based loan to consumer borrowers. A specific form of P2P/Marketplace lending is Property lending, where the loans are secured against a type of property. Along with P2P, there is Business Lending, where the intermediaries facilitating peer-to-business lending enable small and medium-sized enterprises (SMEs) to access loans from a pool of online investors quickly, bypassing the complex process of traditional bank lending. This rapid funding process makes this approach much more appealing to many companies compared to conventional banking methods. Additionally, peer-to-business loans generally show lower default rates compared to those seen in commercial banks, indicating the crowd of investors' ability to identify and support high-quality businesses. Other popular categories include Balance Sheet Lending and Invoice Trading (IT). IT is a model which allows SMEs to sell or auction off their invoices and receivables to institutional investors. In return, they drive down their cost of funding from external sources.

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