External Funding: Obstacle Course

You have worked on your business plan and you have found it necessary to strengthen your funding. Simply put, you need cash! Although you’ve already optimized your internal cash by relaunching your customers and optimizing your stock, for example, it’s not enough. Now you need to find external resources, but which one do you turn to? What will be the obstacles? The possibilities of external financing are diverse: banks, investors, crowdfunding, grants and you have to make a choice.

How to choose

Before turning to this or that type of financing, you should ask yourself questions about your objectives and constraints. Is your balance sheet structure good enough for a banker to take an interest in your case? Are you ready to share the power with other investors? Do you have the necessary teams to prepare documents, files to be presented to investors, grant organizations? These are all questions you should put on the table before seeking your outside funding. Processes usually take time and so it is important to choose your path before you start your requests.

Bank, am I entitled to a loan?

All that can be said, it is the main source of financing for companies in France. Banks continue to lend, although it is clear that they are difficult to lend at the moment. Most of the time, banks don’t care too much about the medium or long term. They are higher in the short term, especially since the Basel 3 conference, which concluded after the 2008 crisis. The result was forcing banks to ask for more equity for the same level of debt. It takes into account the nature of the loan and the risk it represents.

Therefore two consequences should be taken into account:

  • Banks need to increase their equity, which means improving their margins. His aversion to risk has become even greater. So they are making more demands on the quality of the borrower.
  • They lend exclusively to low-risk credit, from a Basel 3 convention point of view. Thus, they hardly offer any further cash credit, but systematically pursue factoring, as this financing is backed by invoice customers.

Lastly, financing is more difficult to find. The prerequisite is generally: a healthy balance sheet structure and optimized internal cash, which means that the working capital requirement is well under control. It is also important for companies to maintain a long-standing relationship of trust with their bank, holding regular meetings with them to keep them informed of developments.

On the other hand, short-term financing, when it is obtained, is more expensive, as factoring is a method of financing that costs more. It also requires an investment of time to be able to monitor and control it.

Calling for Investors, Sharing Power

Despite all the recent tax developments, there are still investors. If your project is good, it can potentially get funding. There are all kinds of investors, and your first step is to find the right category based on the stage of development of your business. If you are at the seed level, you will need to target venture capital. If you are present and you want to grow (eg export), then investors specializing in growth capital may be of interest to you. Etcetera …

While bringing in investors is not a trivial matter, as in return for their contribution, there will be demands on their participation in capital and sometimes even on the management or strategy of your company… you will no longer be the only pilot on board because You will need their approval. In other words: you have to be accountable. Investor intervention isn’t always important because they don’t want management to interfere, but it does exist. You have to accept it before you can even consider this type of financing.

If your decision is made, know that the journey will be long (12 months is often necessary). The very first thing is to make a good business plan. This is your “sales” tool for them. When giving a wish it should be honest, realistic. Most important is the summary that is at the beginning of the document which allows them to sort it out quickly. The investor will read it first and spend very less time on it as he is likely to get a lot of business plans. Please, and your strategy seems realistic to him, he’ll read the rest, and if you’ve done a good job, he’ll call you.

Don’t believe that just because an investor approached you got you on the grill. No, the road is just too long. He’ll ask you a lot of questions and test you, but it will only push you forward in your project. When he’s finally agreed, and his requests suit yours, don’t forget to write the shareholders’ agreement. This document will govern your relationship with your shareholders. Do not hesitate to seek specialized advice that will help you negotiate and allow you to understand it better. This document must be signed before you can enter into your investor’s capital.

Think about crowdfunding: crowdfunding

Crowdfunding, if we translate it literally. It is a question of funding your project or company by addressing the investors who each put in an amount. This financing is now booming in France, but has existed for much longer in the United States, where it is now well established.

Crowdfunding has been greatly facilitated by the Internet and the creation of platforms. It was made popular by funding Gregoire’s first record in France. Today there are many funding platforms aimed at all kinds of projects and funding of all kinds: donations, loans, capital contributions. In France, current law is quite restrictive on the amount that everyone can invest, and on the number of investors. The law evolves and leads to the liberalization of the sector to allow funding of increasingly important projects.

Note that particular platforms will check your credibility and ask you for information to make your communication more reliable. The fact is that the marketing aspect of your request is important so that investors can take an interest in it and bring money to you. So crowdfunding can help you finance some projects but remains relatively modest for most of the time.

Learn about grants

There are many, and it takes too long to create a complete catalogue. With warranty claims or not, they may or may not be refundable. They come from public bodies such as regional councils, or from various associations such as entrepreneurial networks. They can be used to fund research or development for the start-up of a business as well as for export. The difficulty with subsidies remains to find the right one. ie the one that matches your project. for which you meet the criteria for the award. In this maquis, it is often difficult to navigate.

The first advice is to define as a priority what reason you are going to receive the grant. This will allow you to narrow down the search circumference. When you have identified the organization(s) that are likely to fund you, you should check the award criteria before going ahead. If you don’t fill them out, don’t waste your time.

If you meet the criteria, contact the organization to verify that it still has funds available to make grants. In fact, it happens that during the year, the funds allocated for a given type of subsidy run out. So there is no point in filing a case. If there is any money left, you can complete and submit your file.

So grants are an interesting potential funding, but beware of the time wasted in their research, especially if you haven’t optimized it.

You can see that there are sources of external funding. They’ll all be more accessible when your company has done its job on improving the cash generated from your business. In any case, obtaining them is not easy and will require an investment of time and skill. Don’t hesitate to seek out these skills if you don’t have these skills or if you’re already overloaded.

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