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  • What You Need To Know About The Many Sources Of External Funding
What You Need To Know About The Many Sources Of External Funding

Bank loans are the most traditional source of external funding. The bank has the advantage of offering a wide range of credit possibilities, but the guarantees it requires for bank financing can hamper the expansion of the business.

The banks are still wavering on their bases, and the financial authorities are keeping an eye on bankers. The Basel III regulations were designed to prevent financial institutions from going too far again and falling back into trouble. Therefore, companies that want to borrow from banks today must meet very strict financing conditions, and the credit that is granted is limited.

No bank credit, no worries

Business owners who are denied credit should not panic. There are financing possibilities other than loans granted by the bank, and different alternatives are available to these entrepreneurs. Moreover, diversification is a popular trend in financing today. The entrepreneur who thinks long term must carefully assess his financial needs and explore the possibilities available.

Affinity Beyond Capital is closely monitoring developments on the financial markets and has identified 16 different sources of financing. They each have their own dynamics and are good alternatives to bank financing, but each alternative also has its advantages and disadvantages. Who can a committed entrepreneur turn to when up against insurmountable obstacles of a bank? Affinity Beyond Capital is a brokerage firm that specializes in providing working capital to small and mid-sized businesses. They want to make it easy for companies to seek loans for businesses. 

Alternative forms of financing

  1. Own capital

The start-up of any business is financed by money brought in by the business owner. For an SA, the necessary amount is at least 61,500 euros, and 18,550 euros for an SPRL.

If you finance your investments with your own resources, you are still entitled to the notional interest deduction, which is 2.630% for 2014. For SMEs, they are 3.13%. But if you bring in too much equity, you lower their returns.

  1. Stock market listing

De facto stock market listing is the best known method of corporate financing. The equity market also guarantees visibility. Listed companies generate more interest and, therefore, can find business partners more easily. However, a stock market listing increases the pressure on the company.

  1. Angel investors

Angel investors are wealthy families who make money available for projects. The experience, know-how, and network of angel investors can make companies move faster. But when the business really grows, angel investors usually cannot keep up with the required capital increases.

  1. Private equity

These are investment funds that generally take interest in a business for 5 to 7 years; then they look for a buyer. Above all, the funds bring external professionalism. Investors, on the other hand, are primarily seeking rapid gains and not the success of an industrial project.

  1. Crowdfunding

This is a financing method that calls on large groups of investors who generally each make a small contribution to their financing. The crowdfunding can generally occur with few stipulations. However, this type of funding is not suitable for large projects.

  1. Current account of the entrepreneur

The entrepreneur can temporarily borrow money from his own business. This is also an easy method of financing with few stipulations. On the negative side, this type of financing is considered to be an easy way to drain finances.

  1. Corporate bonds

These are loans that directly mobilize savers and investors. In any case, solvent bonds are in high demand today. The issue of bonds, however, depends on market sentiment.

  1. Leasing

This is a situation where a lessor purchases an investment property and then leases it to the lessee. It is an easy formula that usually helps highly indebted companies. But leasing is generally more expensive than credit.

  1. Sale and leaseback

This is a situation where companies sell their own assets to a leasing company and then lease them back from the leasing company. This sale allows them to benefit from a significant financial injection. However, the sale and leaseback is also generally more expensive than credit.

  1. Win-win loan

Individuals can offer a loan of up to 2.75% to SMEs and the self-employed, thus benefiting from a guaranteed tax deduction of 2.50%. The low-interest rate is particularly attractive, but the procedure is complex.

  1. Public lenders

The government offers different forms of temporary financing. The advantage lies mainly in the fact that the presence of government often also attracts other investors. On the other hand, subsidies are not easy to obtain.

  1. Supplier credit

When suppliers allow payments instead of paying one lump sum all at once, the company can breathe a little. The best part is there are no stipulations.

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