Tuesday, May 26, 2020

Business Financing Guide

Whether you want to start a business or develop an existing business, money is the nerve of war.

In this corporate finance guide we review the different options available to you depending on the type of project you are seeking to fund.

The business plan, a prerequisite for the search for corporate financing

The business plan, a prerequisite for the search for corporate financing

A little reminder here, the business plan is the reference document for any major funding research. You will be systematically asked whether you want to borrow from a bank or raise funds from investors.

In a schematic way, the business plan is nothing more than a document presenting your project in a reasoned and encrypted way.

It includes a written part presenting your activity, your concept, your positioning but it also details, through a projected budget, your need for financing as well as the profit potential of your business.

If you are not used to writing business plans, you can consult our guide on the subject, or try our free business plan software online.

Debt, equity, two major types of financing for companies

Debt, equity, two major types of financing for companies

Financing a company is based on two complementary levers: equity and debt.

Own funds correspond to the money contributed by the partners. They may take the form of share capital or shareholder loans (also called current account contributions from associates):

  • Share capital: money contributed to the company in exchange for shares, the share capital is non-refundable, but allows the holder of the shares to dispose of voting rights and receive a share of the results paid in the form of dividends
  • Contributions to partners’ current accounts: repayable advance of money made to the company. Contributions may be paid, and in some cases blocked (ie loaned for a minimum period)

Debt financing refers to borrowing from institutions (banks or credit institutions, state bodies, associations, etc.) or individuals (private investors or crowdfunding in particular).

In this case, the lender advances a sum of money to the company which undertakes in return to repay and pay interest to him according to a schedule defined in advance.

The ideal financial structure of a company must be balanced between long-term capital (equity, medium and long-term loans) and short-term capital (cash facility, loan with less than one year).

The balance between equity and debt must take into account the operational risk related to the sector in which the company operates (cyclical or seasonal activity, or conversely resilient), its cash generation capacity, and the financial risk that are ready to take the capital contributors (associates and financial partners).

Sources of financing companies in France

Sources of financing companies in France

The Banque de France focused on the sources of corporate financing in France and published its conclusions in a report of 31 August 2015 entitled General outline and outstanding corporate finance:

  • Unlisted shares: € 3,532 bn
  • Listed shares: € 1,392 billion
  • Intermediated financing by financial intermediaries: € 909 billion
  • Non-intermediated debts by financial intermediaries: € 581 billion
  • Inter-company financing: € 2,012 billion

The respective weights of equity, cross-business financing, and debt deserve to be emphasized.

In fact, the main source of financing for companies is equity (listed and unlisted shares), which represents EUR 4 924 billion, or 58.4% of the total.

Then comes the inter-company financing, which represents 2 012 billion euros, or 23.9% of the total.

Then third and last place, private loans, and bank and equity financing (included in the debts intermediated by financial intermediaries) which reached 1 490 billion euros, only 17.7% of the sources of financing companies.

These figures, of course, exclude self-financing, that is, financing with the cash flows generated by the company.

Exploitation, investment, creation or takeover of a business: financing adapted to each situation

Exploitation, investment, creation or takeover of a business: financing adapted to each situation

There are many types of business financing, but the means must be adapted to the type of project or asset you are seeking to finance. Follow the guide !

Finance the business’s operating cycle

If your operating cycle has a need for a working capital fund, you will have to fund it by using excess cash or short-term financing.

From the simple authorization of bank overdraft to the mobilization of receivables via the discount or the setting up of a factoring program, no less than 7 financing solutions are commonly used to finance the operating cycle.

Find them in our file on the financing of the operating cycle.

Finance a project or investments

You have to finance more or less important investments (equipment, premises, etc.) as part of the development of an existing company? Several possibilities exist to financially support your project.

You can use private investors, banks and specialized financial institutions, even crowdfunding.

Find more details on the financing related to this type of projects in our file on the financing of the investments.

Finance a business creation

Creating a business requires a good idea, a lot of courage, a lot of work and … funds! Local, material, creation costs, eventual stock, all these elements require a consequent initial investment. Fortunately, several financing solutions exist.

Check out our Business Start-Up Funding Guide to find out about all the financing opportunities related to your creative project.

Finance a business recovery

Becoming a business owner does not necessarily require the creation of your own structure. You can choose to take over a company that has already proven itself. But this operation obviously involves financing the purchase of shares or the resumption of the business.

Discover all the financing solutions adapted to takeovers in our guide to the financing of the business recovery.

Finance a franchise creation

There are advantageous counterparts to join the network of a brand: recognized brand, support of the network at the level of communication, purchasing and logistics, training …

However, creating a franchise business involves a slightly higher initial investment than traditional creation, especially because of the entrance fees that you will have to pay to the network you join.

Check out all of our tips for getting funding for this type of project in our franchise creation guide.

Financing a company in difficulty

More difficult situation, companies in difficulty can nevertheless rely on financing solutions adapted to the urgency of the situation and the extent of the means to implement to return the company.

To find out what means are available to finance a company in difficulty, consult our file: zoom on the financing of companies in difficulty.

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