So, how to finance the projects of his company? What are the main methods to obtain a loan for your SME? What are the advantages and disadvantages of each?
Traditional methods to finance your business
- Personal savings seem to be one of the most obvious resources. The use of your savings has the merit of being effective in case of high rates of borrowing.
- Love Money , that is, money from your loved ones, is another method of financing. The major disadvantage of this method is the risk of deteriorating relations with your loved ones in case of failure.
- Bank credit remains one of the most widely used solutions. On the other hand, interest rates can be significant and the associated obligations binding.
Finance your SME through Financial Markets
- Financial markets also offer multiple financing solutions for SMEs.
Bonds allow you to borrow without having to resort to the bank loan system. This method of financing offers your SME visibility to investors. The fixed rate of the bond makes it less risky than the stock, whose price can collapse at once.
- Having mezzanine debt is more risky, but it can be of real interest if you buy a business . This method limits the capital invested in the company while optimizing its profitability. This debt subordinated to the so-called “senior” debt thus makes it possible to maximize the leverage effect.
- the issue of shares remains a reliable method for financing your business.
Investment Funds, Alternative Financing Methods
- If your company is young and dynamic, investment funds can be very interesting to develop your business. This method of financing, is used by many SMEs.
Large companies are looking for innovative projects but their large size can limit the “innovation process”. Unlocking funds to finance start-ups allows them to remain flexible. Among these large companies, we can notably mention the main French telephone operators.
- Seed capital funds allow you, for their part, to finance your project before its launch, especially as regards research and product development. With these funds, the value of your business is defined and you can value it from investors.
- Business Angels : In addition to financing your business, these investment professionals also put their skills and expertise to work for you. If you have the sense of persuasion, this may be the perfect solution for you! On the other hand, if you want to be the only one making the decisions, it may not be the right method of financing.
- The Public Investment Bank (BPI) supports SMEs by supporting them and investing in sectors considered promising , such as digital technology or the social and solidarity economy. All you need to do is contact BPI advisors.
- Public Finance offers many solutions for companies. Whether at the national or local level, communities and public authorities can grant credit, aid or subsidies for the development of your SME. Many specific grants are created by municipalities, departments and regions to develop their activities in their geographical area. Thus, if your project is about the construction of alternative transport, multiple opportunities for financing will be available to you.
- As an entrepreneur, you can also turn to the various existing loans:
- The loan NACRE is without interest After analysis of your project, this loan can be granted up to 8 000 euros . To finance your SME, it must of course that it corresponds to the criteria of this device, namely the ceiling of the financing plan to 75 000 euros and the agreement of a bank loan.
- The Loan of Honor will be granted to you without interest or guarantee if you create or take over a business and you pledge your honor to repay the amount borrowed . Its amount varies according to the nature of your project. The advantage of the loan of honor is of course its simplicity.
- Finally, specific aids exist for each type of project and for each professional field. To know them, it is advisable to contact the BPI or the local authorities.
Crowdfunding, an innovative way to finance your business
Crowdfunding is one of the sources of modern finance. The term “Crowdfunding” emerges in the early 2000s in the United States. “Crowdfunding” has developed in Europe through initiatives in the field of music.
Crowdfunding consists of presenting a project on specialized platforms to convince the maximum number of Internet users to participate in its financing. The novelty of this method is the unrivaled visibility of the project through the Internet and social networks.
Crowdfunding can take three forms, donating , lending or taking equity :
- The donation : The user gives the sum of his choice without waiting for return on investment . This type of unrequited participatory financing is often used by associations and institutions of a humanitarian or solidarity nature. There is also the gift versus gift model (in kind). It supports a project while receiving an original counterpart that aims to attract the largest number of investors.
- Loan : Internet users lend money to the project leader. Interest is in the range of 4 to 12% on average. This method financing allows both parties to make a profit.