When talking about financing companies and institutions, the need for a sponsor has always been a traditional requirement for companies seeking financing. But recently, a trend has emerged in which more companies are finding ways to get financing for themselves without the need for a guarantor.
By breaking free from the constraints of leveraged financing, companies can gain greater control over their financial decisions and explore innovative ways to grow.
In this article, we’ll delve into how businesses can get financing without a sponsor, and explore how this approach enables businesses to achieve financial independence. We will examine the advantages and key considerations involved in securing financing without a guarantor.
What is guarantor-free financing?
Non-guarantor financing for enterprises refers to a type of financing provided to enterprises and small and medium-sized companies that do not have a strong credit history or sufficient collateral to obtain a traditional loan. This type of financing is provided by a number of institutions, including banks, finance companies, and governments.
In the case of conventional financing, lenders often require a guarantor, usually an individual or other company with a strong financial standing, for the purpose of providing guarantees for the repayment of the loan in the event that the borrower is unable to fulfill their obligations.
However, in the case of financing without a guarantor, the borrowing party relies solely on creditworthiness, business performance, and assets as collateral to secure repayment of the financing amount. This approach allows companies to maintain greater financial independence and control over their operations, as they do not rely on external guarantors to secure the amount of financing.
The non-guarantor financing approach has become increasingly popular among companies that have financial records, strong business plans, and adequate collateral, but at the same time may not have access to suitable sponsors, or prefer not to involve third parties in their financial affairs.
While it offers greater independence, this financing option may come with stricter eligibility criteria and greater scrutiny by lenders to evaluate the borrower’s creditworthiness and ability to repay the loan without the support of a guarantor.
What considerations must companies meet to get corporate financing without a sponsor?
Obtaining financing for organizations that do not have a sponsor usually requires the fulfillment of specific conditions to reassure lenders of the borrower’s ability to repay the loan independently. While requirements may vary depending on the lender and the nature of the financing, some common conditions that organizations often must meet may include:
- Strong financial position: The institution must have a strong financial record that demonstrates its profitability, positive cash flow, and sound financial ratios. Lenders in this case will evaluate the organization’s financial statements, including income statements, balance sheets, and cash flow statements.
- Established track record of operations: Lenders prefer organizations with a proven track record of business operations, which typically requires a specific number of years in operation.
- Good credit history: The organization’s business and personal credit history (for small businesses or startups) will be evaluated to evaluate payment history, outstanding debts, and credit score.
- Having sufficient assets: Organizations may need to provide sufficient collateral to secure financing, which may be in the form of real estate, equipment, inventory, or other valuable assets.
- Detailed business plan: A comprehensive business plan that outlines an organization’s goals, strategies, and financial projections is critical to demonstrating a clear vision for growth and how funds will be used.
- Proven Industry Experience: Institutions operating in niche industries may be required to showcase the expertise and experience of their management team to ensure lender trust.
- Low debt-to-income ratio: Lenders will evaluate an organization’s debt-to-income ratio to ensure it can manage its debt without compromising its financial viability.
- Stable Cash Flow: Demonstrating consistent, reliable cash flow is essential to convincing lenders that an organization can meet its loan obligations.
- Positive market outlook: The lender may evaluate an organization’s market position to assess its growth potential and future prospects for the industry.
- Compliance with regulatory requirements: Organizations must be in good standing with relevant regulatory bodies, and adhere to all legal obligations and compliance rules.
- Clear purpose of the loan: It is necessary to explain the purpose of the loan in a specific and clear way, explaining how it will contribute to the organization’s growth and financial stability.
It is important to note that the conditions for obtaining financing without a guarantor may be more stringent than traditional financing. This is because the lender bears a higher level of risk without the involvement of a third party. Therefore, institutions interested in this type of financing must be prepared to provide detailed documentation and a strong case for their financial stability.
What advantages will institutions get from financing without a sponsor?
Here are some of the advantages that organizations will get from financing without a sponsor or guarantor:
- Financial independence: Financing without a sponsor gives institutions greater financial independence, as they do not need to rely on external parties to obtain financing. This gives her greater flexibility in making financial decisions and allows her to manage her money more effectively.
- Reducing dependence on external parties: Financing without a guarantor is a good way to reduce dependence on other parties such as banks or financial institutions, which provides institutions with greater control over their funds, and protects them from exposure to risks.
- Flexibility in using funds: Financing without a guarantor provides institutions with greater flexibility in using funds, as they will not need to use them for purposes specified by the lender. This allows organizations to use the funds for any purposes that serve their interests, such as expanding their business or developing their products or services.
- Privacy protection: Financing without a guarantor protects the privacy of institutions, as you will not need to provide any sensitive financial information to financing entities. This prevents the leaking of this information to unwanted parties, and protects institutions from exposure to the risks of financial fraud.
- Enhancing the institution’s credibility: Financing without a guarantor enhances the institution’s credibility, as this is seen as an indicator of the institution’s financial health and its ability to manage its funds effectively. This helps organizations obtain better financing in the future and improves their business reputation.
- Improving an organization’s bargaining power: With a strong financial position, organizations can negotiate better terms and conditions with lenders, which may result in better interest rates and loan granting conditions.
- Speed of decision-making: Financing without a sponsor speeds up the decision-making process, as it does not require institutions to wait for the approval of any external parties to obtain financing. This allows it to move quickly in volatile markets and achieve its financial goals.
- Avoid legal complications: Financing without a guarantor avoids the legal complications that may arise when obtaining financing from external parties. This is because financing without a guarantor does not require any contracts or complex legal agreements.
- Building a business reputation: Financing without a sponsor is a good way to build a strong business reputation; It is seen as an indicator of the institution’s financial health and its ability to manage its funds effectively. This can help organizations attract more customers and generate more profits.
- Building a long-term financial strategy: Financing without a sponsor allows organizations to build a long-term financial strategy; This is because financing without a guarantor gives organizations the flexibility to use the funds as they wish, without the need for the approval of any external parties. This, in turn, enables a business to plan for the financial future and achieve long-term financial goals.
How can you obtain financing for institutions without a sponsor from Al Raedah?
Al Raedah’s programs are designed to provide small and medium-sized enterprises and businesses with the easiest and best ways to obtain financing for an institution without a guarantor, compatible with Islamic Sharia regulations, and with payment methods of their choice.
The purpose of this is to provide permanent and integrated support to investors and facility owners to develop their businesses and projects. Among the most important financing solutions that Al Raedah provides to enterprises are:
Point of sale financing program
The point-of-sale financing program is allocated to institutions and owners of small and medium enterprises, to achieve their desired goals and develop their businesses by obtaining quick and appropriate financing from a sponsor or monthly installments.
Terms of the point of sale financing program:
- The point of sale financing program does not require a guarantor or guarantor.
- No monthly installments needed.
- Payment method is daily through points of sale.
- The annual percentage rate ranges from 14%-78%.
- A one-time fixed administrative fee of 1.5% (or at least 5,000) Saudi riyals.
- 15% value added tax applies.
- Financing is up to (21%, 38%, 50%) of total annual POS sales with repayment terms of one, two or three years respectively.
- The financing amount for unsecured facilities starts from 50,000 Saudi riyals and reaches 1,500,000 Saudi riyals. As for guaranteed facilities, Al Raedah offers more financing to suit each case individually.
E-commerce financing software
Al-Raeda offers an e-commerce financing program to customers who have established platforms active in the fields of technology and e-commerce, to obtain financing according to monthly sales.
Terms of the e-commerce financing program include:
- Designated for electronic stores that have a commercial register and have an annual income of up to 250 thousand Saudi riyals.
- Payment is made by weekly or monthly transfer.
- You can choose from 6, 9, or 12 month packages.
- The annual percentage rate ranges from 23.52% – 40.69%.
- Administrative fees are paid once, ranging from 1% – 1.5%.
- The minimum financing is 50,000 Saudi riyals, and the maximum financing is 1,500,000 Saudi riyals.
- You can apply for refinancing once 60% of the financing amount has been paid.
So, as we have seen, obtaining institutional financing without a sponsor is a good option for institutions and establishments that are looking for financial independence and want to reduce dependence on external parties, and for institutions that want to enhance their credibility, improve their bargaining power, speed of decision-making, and build a commercial reputation with a long-term financial strategy.
However, it remains important for institutions to keep in mind that obtaining this type of financing may be more difficult than obtaining a traditional loan, so it is important that they prepare themselves well before submitting an application for financing of this type.
To obtain financing for institutions without a sponsor in Saudi Arabia, Al Raedah stands out and is distinguished as the best entity in terms of the financing services it provides, Al-Raedah gives you financing that meets your aspirations in the simplest way.