In this article we are going to analyze how mandatory cross-selling increases the cost of financing traditional banking, we will see what is the real cost of financing through traditional banking and we will compare it with the cost of financing through traditional banking. of alternative banking; Above all, we will focus on compulsory cross-selling and on those hidden costs that force us to assume traditional banking when we ask for financing and which, in the end, always translates into a very significant increase in the cost of financing.
For this we are going to use a special report that INBONIS has drawn up recently and that it has published on its website .
Who is INBONIS?
INBONIS, a recently created FinTech company that was incorporated in October 2015 and started its commercial activities in March 2016, is managed by a large multidisciplinary team with extensive experience in financing and managing small businesses.
Therefore, INBONIS is a company that was born with the vocation of financing SMEs (remember that in Spain there are more than 1.3 million SMEs, representing 65% of GDP and generating almost 70% of existing employment) and that it will do so by granting loans, ranging from € 25,000 to more than € 250,000, and which are to be repaid in a short-term amortization period ranging from 6 to 12 months. They can be provided only with the guarantee of the company (that is, there is no need for personal guarantee in many cases) and this is thanks to a study that is made of the credit of the company through a special program that INBONIS has created. It allows you to calculate the risk perfectly.
In the study process INBONIS analyzes the cash flows of the SME requesting financing, analyzes the commitment of the entrepreneur and also the recommendations of its environment to be granted financing and based on all this INBONIS will set an interest rate u another to the loan granted.
Since this past February, INBONIS is offering loans to SMEs that are being managed by their owners and have a turnover of over 100,000 euros and, in this short period of time, has already granted loans to more than 80 companies and all at a supercompetitive cost of 7% on average, including all costs.
What is the real cost of financing through traditional banking?
INBONIS did a study and found that the cost of financing SMEs (despite the facilities to obtain financing at low cost that financial institutions have thanks to the ECB) has not dropped 6% at any time and that has meant paying an extra cost that is twice what German SMEs pay, for example.
With the lowering of interest rates, financial institutions reduced their financial product rates a little, but this decrease compensated in another way and it was raising commissions and forcing SMEs to contract many of their financial products if they wanted to be granted. the requested funding
Thus, according to the report of INBONIS , the initial cost of financing offered by traditional banking must be added up to an additional 4.6% according to the ECB and another 2% in various commissions, such as study or opening, for example, and 0.25% for the amounts of unused funds and this should be added mandatory cross sales (life insurance, direct debit and tax or pension plans or credit cards) that would increase the cost of financing another 1.3% and, finally, it would also be necessary to add the cost of the personal guarantees that force you to assume that they represent an additional extra cost of more than 2%, that is to say, adding up all the cost of financing through traditional banking to the SMEs can exit at the end for a cost higher than 10% above the price of money.
How are SMEs financed in Spain?
Mainly through traditional banking in more than 95%, while in other countries it is already beginning to see that SMEs resort to alternative financing, such as Crowdlending, for example, and thus in the US and 70% of the SMEs come to seek money in non-bank sources and in France or Germany they are already more than 50 and 40% respectively, while in Spain barely if it is tried by just over 20% of SMEs.
The new FinTech investment and financing companies are growing like foam and this is thanks to they do not force compulsory cross-selling to grant financing, because they are much more transparent and agile when it comes to processing “paperwork” for the granting of financing (the entire process, even the signature, is done in a online) and, finally, they are much cheaper than traditional banking, they demand less real guarantees and even better value the SME risk through the modern study techniques and risk assessment programs they have developed.
Example of calculating the cost overrun for commissions: Thanks to the INBONIS Simulator we will calculate what the real cost of a loan of € 10,000 would be to return to the initial 6% and within a period of 12 months but that it has a study commission of 1 % and an opening commission of 1% and you will see how the APR is increased up to more than 10% and that without counting other possible costs, as if you had to offer personal guarantees or you had to suffer a mandatory cross sale, because in In those cases, the total final financial cost would be even greater.