Disruptors, it seems, are everywhere in the food industry—from foodservice and grocery stores to restaurants and logistic firms. This extends to consumers too, whose purchasing habits have undergone radical changes with the likes of Amazon, Uber, and others offering goods and services with speed and ease. Such disruption is also reshaping how companies seek capital—as startups and small- to medium-sized businesses are tapping into the benefits of an alternate universe for financing.
Alternative finance (known as ‘AltFi’) is a twenty-first century version of banking, using the internet instead of bricks-and-mortar buildings. It has democratized access to not only capital but also investment opportunities, and businesses are turning to these online funding sources at an increasingly high rate. According to the 2017 Americas Alternative Financing Industry Report, over 143,000 U.S. businesses raised approximately $42 billion in funds through online AltFi channels in 2016, boosting the market by 22 percent over the previous year’s record $34.5 billion.
For those fresh produce industry companies having difficulty getting financing the old-fashioned way, AltFi may offer another venue for funding.
A Perfect Storm
The rise of alternative financing as an option for new businesses or those seeking growth grew out of a confluence of factors: the 2008 banking crisis, federal regulations, and technology.
The 2008 financial crisis nearly took down the entire banking industry, and the ability of small businesses to secure loans was particularly affected, as lenders became fearful of adding bad debt. In 2009 the number of small business loans decreased by more than 42 percent, according to the U.S. Community Reinvestment Act database.
Credit was further tightened by the Dodd-Frank Act of 2010 which added 225 new regulations restricting bank investment practices, mandating tight capital requirements, and subjecting large banks to strict stress tests. As a result, small business loans—already under pressure—dried up as big banks approved less than 9 percent of small business loans in 2011.
The regulations also accelerated consolidation in the financial services industry. The number of federally-insured commercial banks decreased from 6,815 in 2009 to just over 5,000 in mid-2017. Many were swallowed through mergers, others simply shut down, and community banks were hard hit.
While banks were pulling back, a fledgling industry less than a decade old was perfectly positioned to offer a lifeline to startups and small businesses unable to obtain capital. Technological advances, driven by digital networks and the internet, enabled entrepreneurs to dive into financial waters, buoyed by investors who saw an opportunity to create value.