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Financing 101
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6 financing levers for your business
William Whatman
December 21, 2023
3 min

6 Financing Levers for Your Business

Financing your business is an important step for the development of your activity. However, depending on the age of your company and your needs, the sources of financing can multiply. Let's take a look at the most suitable financing options for your needs.

Financing Your Business Creation

Let's start with the beginning: financing the start of your project. There are several financing solutions suitable for launching your business.

Love Money

Love money refers to the money that your relatives, friends, and family will lend you to finance your business. Generally, the money lent by your loved ones is used to build your equity and finance your initial needs.
It can also be used in the case of a capital increase to strengthen your equity. Love money is therefore ideal for building your equity and financing your initial needs.

Grants

A grant is a financial aid granted by a public organization to your company. With a grant, you do not have to repay the amount that is awarded to you. It is usually allocated based on your sector of activity or the location of your company.

Among some well-known grants, we can mention the grants from BPI France or regional grants.H

Honor Loans

An honor loan is a loan that is granted to you as the manager and not directly to your company. This loan is interest-free and unsecured, and the amount granted varies depending on the organizations (Initiative France and Réseau Entreprendre are the two main ones).

These types of financing are very good ways to finance your business without capital. They also allow you to test the reliability of your project as they are examined by a jury.

However, they are often coupled with bank financing (ultimately, they come to build your equity and obtain larger financing) and certain criteria must be met to benefit from them.

Crowdfunding

Crowdfunding is an alternative financing method that allows you to finance your project through the "crowd". All of this happens through online platforms and all types of projects can be financed.

This source of financing is ideal if you do not want to go through more traditional financing routes. It is also an excellent way to test your product and make it known to your market. However, you are not guaranteed to raise the necessary funds for your project.

Now that you understand how to finance the start of your activity, let's move on to its development.

Financing Your Working Capital Requirement (WCR)

Depending on your activity, you may have cash flow gaps to finance. This is what is called the Working Capital Requirement. This means that between the moment your customers pay you and you pay your suppliers, you have cash flow needs.

There are two main ways to finance this requirement.

Banks

To finance your WCR, banks offer you short-term financing options. There are many of them. Among the most well-known, we can mention overdraft, factoring, discounting, or treasury bills.

These are financing options with a duration of less than one year that align with your cash flow needs.

Fintechs

Fintechs also offer short-term financing solutions. Their advantage mainly lies in the speed and simplicity of the experience. Solutions like Defacto even connect directly to your accounting tools to offer financing solutions on your invoices.

This allows them to be much faster in providing financing (compared to the average 3-month process with a bank) and much more flexible (no minimum balance with 100% flexible repayment).

Financing an Investment

The same players are involved in financing your investments. Here, we're talking about financing material investments intended to stay in your company for several years (machines, premises, etc.).

Banks

We just mentioned above that short-term financing options are used to finance the WCR. Medium and long-term financing options are used to finance your investments. The two main ways to finance them are bank loans and leasing.

Fintechs

Although less common, some fintechs also allow you to finance your investments by granting you medium and long-term loans. Just like with cash advances, their advantage lies greatly in simplicity and speed.

Financing Growth

Finally, let's see how to finance your company's growth. While banks are often the go-to for all types of needs, they are not always the best choice for growth financing. Instead, consider these two options.

Business Angels

A business angel is a individual who usually intervenes in the early years of your company's life and finances your needs with their own capital. They are usually entrepreneurs or experienced executives who have some liquidity and want to support entrepreneurs in their projects.

Beyond their financial contribution, a business angel can bring credibility to your project and provide you with advice based on their experience. But this comes at a significant cost and the human relationship is very important. So think carefully about your needs before committing.

Investment Funds

We mentioned earlier that the role of banks is not to finance growth. That is precisely the role of investment funds and the famous fundraising.Their role is to support you in the growth of your company in exchange for shares in your capital. They can intervene at different stages of your company's life (seed, series A, series B, etc). Investment funds can be a real springboard for your company and allow you to take it to the next level with the invested money and strategic support. However, the trade-off is significant: you dilute your shares in your company. It is therefore very important to identify your needs well and understand the consequences before committing.

In conclusion, remember that each type of financing is suited to a specific need.

Love money, grants, honor loans, and crowdfunding for launching your business.

Banks and fintechs for financing your WCR and investments.

Business angels and investment funds for financing your growth.

Finding financing that suits your needs is the right first step in your funding quest.

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