Do you want to know all the types of financing available to companies within your reach? If you want to know the answer to this question, don’t stop reading this post.
We are going to tell you about our 15 proposals. When you finish reading this article, you will only have to choose from the types of financing for companies that best suit your needs.
Of course, you will always have us in case you need professional advice.
The formulas for business financing are changing, and the options in the market have multiplied.
New financiers and novel ways to obtain liquidity tailored to the needs of any company, regardless of its size and business volume, are emerging every day.
As we have already mentioned, in this post, we will review the main formulas that you can access, always with the recommendation of expert professional advice.
The types of financing for companies you should know about
1.Bank loan
Among the most common types of financing for companies is credit granted by traditional banking.
Until relatively recently, it was almost the exclusive formula for businesses to obtain liquidity.
There are bank loans of all kinds. Within this field ICO lines, which have been widely used during the pandemic crisis to obtain financing with the guarantee of the Spanish State.
Depending on the economic situation and the cost of money, conventional banking entities have more or less strict requirements for granting credit.
In dealings with banking entities, it is crucial to present business projects and business plans to ensure that they understand the capabilities and needs of the company.
This is an area of advice in which Kaizen Consulting has extensive experience: accompanying clients to manage loans with banks and present the needs and projects of the company.
2.Credit line
This formula represents a credit amount that the banking entity grants to cover the small differences between collection and payment, within the company’s usual operations.
The usual thing is that the amortized amount of the principal can be made available again, but it has a usually high agreed interest rate.
If this credit is not used, it is penalized with a non-disposition fee.
A credit line is a tailored form of financing: the entity provides us with an amount of money to use according to our needs.
It serves to cover certain short-term expenses, but it is a “hard” form of financing in terms of procedure and requirements: the banking entity, on a quarterly basis, proceeds to settle interest on the capital that has been used and the fees for the unused portion.
3. Discount of bills or promissory notes
Another short-term financing formula is the discount lines of bills or promissory notes.
Through them, the company saves itself from having to wait until the title matures and can dispose of its amount immediately, once a percentage has been discounted depending on the time remaining until its maturity.
4. Renting
Renting is a financing model that allows leasing assets for a specified period, and once that period ends, they are returned to the leasing company.
This formula is particularly advisable in the case of companies that need real estate for their daily activities.
The most common case is that of the vehicle fleet, but it can also be applied to a warehouse or office equally.
It avoids a high investment in purchase, which allows the company to have more liquidity.
Currently, in Spain, the average term of the renting contract is three years and eight months: 44 months, according to data from the Spanish Association of Leasing and Renting (AELR), which points out in the first semester of this year a spectacular growth of more than 80% compared to 2021.
Renting also has an added tax advantage, as it allows for VAT and income tax deductions. Vehicle leasing is the most common leasing contract, accounting for almost 26% of registrations in our country.
5. Leasing
Continuing with the types of financing for companies, we must talk about leasing. This leasing formula allows for the purchase when the contract’s stipulated term ends.
Like renting, it can be used to finance machinery, real estate, and any other commercial or industrial infrastructure of business activity.
It is similar to renting, but it includes the option to purchase: a long-term financial lease agreement with a purchase option.
The company pays an entry fee and a periodic amount before becoming the product’s owner, assuming all expenses derived from its use.
We can distinguish between financial leasing and operational leasing.
In financial leasing, the entrepreneur chooses the asset, the supplier, and the lease term, but it is the bank that acquires it and leases it to the company.
At the end of the contract, the customer has the option to keep the leased asset in property or replace it with another one.
Operational leasing is carried out without intermediaries. The entrepreneur signs the contract directly with the manufacturer or supplier, committing to monthly payment.
A diferencia del renting, no hay servicios extra asociados al uso del bien a cargo del arrendador, como pueden ser las reparaciones. En caso de optar por quedarse el bien al final del contrato, las cuotas de alquiler se descuentan del precio final.
6. Lease back
Within leasing, there is a special case called leaseback, which can be especially interesting as an alternative financing for companies.
This is because the company sells a property to a leasing company but maintains its use as a lessee and with the option to purchase at the end of the contract.
7. Factoring
Factoring is a financial operation that allows advancing the payment of the invoices issued by a company. This company assigns the invoices generated by its sales to another company (in most cases, banking entities) that will be in charge of managing the collection. In exchange, the factoring company pays the company the amount of the assigned invoices, minus a percentage as a commission.
The main advantage of factoring is that it generates immediate liquidity and does not generate debts. It allows collecting invoices at the same time they are issued and outsources the management of collections. On the contrary, it entails a high financial cost: factoring entities charge a commission for each operation based on the credit, which can be from 2 to 3% of the total. They also charge interest based on the maturity period and for the service costs.
8. Confirming
It is a financial service offered by entities so that companies can pay suppliers. The entity that provides this service to companies advances the amount of an invoice to the supplier, guaranteeing the payment.
A credit line is thus opened, and the management of payment to the supplier is taken care of. For this service, commissions and expenses are charged, in addition to the interest agreed in the credit policy.
This formula has costs, but it does not affect a company’s own debt capacity and makes it possible to pay all pending invoices immediately. The supplier is given the option to collect the invoice at its due date or in advance.
9. Crowdfunding
It is a type of microfinancing that resorts to economic donations to finance a project. It is a type of financing for companies that is very popular among younger people.
In exchange, investors are offered a series of advantages or rewards that they will receive when the project succeeds. It is an example of collaborative economy and is usually managed online.
10. Crowdlending
This tool is a type of loan that allows connecting companies seeking capital with potential investors.
The company obtains financing for its project through the collaboration of a group of people who invest a monetary amount.
It is carried out through a crowdlending company, and in exchange for contributing money, investors receive a consideration at an agreed interest rate. The crowdlending platform also receives a commission as an intermediary.
11. Grants and subsidies are also considered types of financing for companies
Public administration funds support business activity with grants and subsidies, marking certain conditions to qualify for them.
There are non-refundable grants and also public loans, which must be repaid but offer more advantageous conditions than the private market.
12. Project Finance
Project Finance is a specialized financing method used in large-scale projects, such as infrastructure and energy. In this approach, a separate legal entity is created for each project, disconnecting its financing from the sponsoring company’s balance sheet.
Investors finance this entity and assume the risks and benefits of the project, based on the future cash flows generated by the project rather than the company’s overall assets. This structured approach allows the mobilization of capital specifically aimed at large-scale projects, mitigating risks by effectively allocating them among the involved parties.
13. Bond Issuance
A company issues bonds to finance its operations. Bonds are a form of debt and obligate the issuer to pay interest to investors and return the capital on a future date.
It can be a way to obtain financing for long-term investment projects or to refinance debts. Investors who buy bonds receive regular interest payments, and upon maturity, the invested capital is returned to them.
Bond issuances are conducted through investment banks and other financial entities. Their success depends on the financial strength of the issuer and market conditions. There are different types of bonds, depending on their characteristics and conditions.
14. BME Growth
It is a market aimed at SMEs, serving as a platform for them to access capital markets. BME Growth has a set of registered advisors to assist companies throughout the listing process, both in the phase of entering the market for listing and subsequently, on a day-to-day basis, to comply with the regulations required by the CNMV.
To list on this market, companies must be anonymous societies and must meet a series of requirements. Since its foundation 10 years ago, 160 companies have debuted on this market.
15. Bridge Loans
Bridge loans are temporary financial instruments designed to address liquidity gaps between an immediate need for funds and obtaining long-term financing. They function as a facilitating “bridge,” allowing the execution of projects or transactions before securing more durable financing. Commonly used in situations where long-term financing is expected in the near future, these loans are flexible in terms of duration and conditions.
They can be applied in various industries and operations, such as acquisitions, construction projects, or mergers, and are repaid or refinanced once long-term financing is secured, thus offering a strategic solution to efficiently manage short-term financial needs.
These are some of the types of financing for companies that exist. If you have any doubts or want our advice, do not hesitate to contact us. You can easily find us by clicking on this link.
