Corporate financing guide

Discover all the financing solutions available to companies and identify those that best meet your growth challenges.

The essentials for understanding business financing

Business financing: definition

Corporate finance is the search for and management of the cash needed for a company's operations and investments. 

This principle applies to all sectors, from industry to technology, including art financing, which presents particular challenges in terms of the financial cycle and asset valuation.

By financing, we mean all the financial resources financial resourcesavailable to a company. These give it the resources it needs to carry out its business, invest in new projects, expand, recruit, and so on. 

Why does a company need to finance itself? 

Financing is of critical importance to any business or project. From paying suppliers, to acquiring customers, to recruiting and paying salaries, all businesses, regardless of size, need financing.

Faced with these day-to-day operational needs short-term credit is a strategic financing solution, enabling companies to maintain a healthy cash flow while managing their operating cycles efficiently.

Thus, a company's financing needs may correspond to theinitial investment required to start the business. For example, a shopkeeper needs funds to buy a business. Business credit is the ideal solution for financing these initial investments. An e-tailer, on the other hand, will need financing to attract visitors to his or her website.

The need to finance businesses can also be explained by specific investment requirements such as equipment renewal, modernization, the development of new products or services, or increasing production capacity. These costs of goods are, in most cases, exponential and require financing prior to their implementation.

Finally, it may coincide with investments necessary for the operational running of the company, such as working capital requirements (the funds needed to finance the company's operational cycle). 

Why do some companies need financing more than others? 

Companies with significant financing needs in France generally have positive working capital requirements and must finance their operating cycle before receiving cash flow. They must continuously finance their business, and this need is even greater when the company is growing.

Unlike some companies that find their customer base immediately and do not need to make large initial investments, certain organizations are unable to self-finance immediately and have a significant need for financing. Indeed, businesses where the company must pay suppliers before being paid by its customers often need positive working capital, which translates into a BFE (working capital requirement)."

If you are launching a new mobile application, user acquisition will undoubtedly be one of your biggest challenges. This involves investing in (often costly) advertising campaigns, producing content, tracking your KPIs, and developing awareness of your app. However, these investments are usually necessary long before your app becomes profitable.

Alongside WCR, Net Working Capital (NWC) is a key indicator to monitor. A NWC is insufficientmeans that the company does not have sufficient stable resources to finance its operating cycle, which can increase its need for external financing, particularly during periods of strong growth. Franchise projects are also affected by these initial financing issues, with specific requirements for entry fees, point-of-sale development, and start-up inventory. Discover our comprehensive guide to financing a franchise.

These financing needs inherent to young technology companies, SaaS, and eCommerce companies are used to cover the start-up phase (recruitment, product or service development, etc.) and to ensure the evolution of its technical debt and growth. 

Indeed, the innovative character and the economic model of these companies do not allow them to clearly define all the components of their market and to ensure immediate profitability. 

In the same way that a digital startup needs capital to launch its activity and develop its products, many VSEs, SMEs and marketplaces need capital to launch and grow. An e-merchant will need financing to attract visitors to its website and to produce and acquire stocks. A startup that develops an innovative tech product will also need financing quickly!

Another example is that a SaaS in the seed phase designs and develops the service or software that it intends to offer to its customers. This requires high investments in R&D and innovation. At this stage, the SaaS does not record any cash flow, which is essential for the creation of the tool that it wishes to offer to its customers later.

During the marketing phase of its services, SaaS begins to record monthly or annual subscriptions and requires cash flow for its marketing and communication expenses in particular. 

Billing starts and customer subscriptions bring money into the coffers. However, these payments are collected with a significant delay, especially for large customers. In addition, to offset the risk of contract termination and late payments, it is important to keep a cash flow margin to continue to develop the company serenely. 

How can financing your company help boost its growth? 

Financing your business allows you to invest and implement strategies that are crucial to the company's development. Without financing, there can be no recruitment, no investments, no customer acquisition, no product development, and no international expansion. 

Financing is the cornerstone of a company's development and enables it to boost its growth. 

What are the two categories of funding? 

Two main categories of financing : dilutive solutions and, conversely, non-dilutive solutions. 

What is dilution?

The principle of capital dilution is very simple: a founder will ask for an investment in exchange for a share of his company's capital, in other words, he will share his capital and part of the control of his company. The increase of the capital by issuing new shares will generate this dilution.

This phenomenon is therefore very common in equity fundraising operations. In principle, this contribution does not lead to any repayment. The increase in liquidity allows the founders to have all the means for the next steps in the development of their start-up. 

Although at first glance, raising capital through a fundraising process seems like an interesting strategy, the principle of dilution that it entails poses a problem. Indeed, by distributing shares of capital, the founder's decision-making power diminishes. 

The issue of new shares will create new voting rights for the benefit of the new associates. The founder must then take into account these votes in the decisions.

The dilution of capital also leads to a reduction in the amount of earnings per share (EPS). The new shares created will confer new rights to share in the profits and the new shareholders will therefore receive dividends. 

Irreversibly, the unit amount of dividends (in case of profitability) received by the founder before the operation, decreases.

Dilutive financing

Dilutive financing solutions are for example love money, business angels or venture capitalists. The arrival of investors goes hand in hand with an increase in visibility and credibility on the market. 

It shows the general public that they are confident about the success of the company. The company then benefits from the network of its investors. In addition, the investors can act as mentors and advise the partners with an outside view on the strategy. 

Financing without dilution

When it comes to bank loans or grants, the financing is non-dilutive. While this type of financing allows you to retain control of your business, it does come at a cost. For example, borrowing involves paying interest or commissions.

What are the different types of dilutive financing adapted to the company?

Crowdfunding

Crowdfunding (or participatory financing in the broad sense) is based on a system of collecting donations, loans or equity investments. 

Via platforms such as Lita.coa business owner can ask a large number of small investors to participate financially in the creation of his company.

Equity crowdfunding (or participatory investment) is when the capital providers take a share in the startup's capital at the end of the financing round. Contrary to the other modes of crowdfunding, the investors become shareholders of the company they are financing. 

Crowdequity is thus a dilutive financing.

Business angels

A Business Angel or "providential investor" is an independent individual who invests their personal funds in a company. Generally, thanks to their network and experience, Business Angels also provide advice to the project leader. 

The aim of the Business Angel is to generate capital gains from his investment by selling his stake after 3-5 years. It is therefore a dilutive mode of financing. 

Microcredit

Microcredit helps to overcome the difficulties of access to bank financing. Its objective is to help project holders to create or perpetuate their project by granting a bank loan that is more accessible than traditional bank loans. 

In addition to the loan, this scheme is often accompanied by a follow-up of the beneficiaries: assistance in administrative procedures, help in cost control, business development, etc. Microcredit is non-dilutive financing.

VC's / fundraising 

Venture Capital is an equity investment by professionals or investors. For this, they can subscribe to :                     

• of common shares
• preferred shares
• shares with warrants (ABSA) or other favourable conditions

In all cases, in addition to funds that can reach several million euros, they also make their network and expertise available to the structure.

It should be noted that an investor's entry into the capital is temporary. In concrete terms, the VC fund remains on average between 3 and 7 years in the company's capital. And for good reason, its objective is to realize capital gains in the shortest possible time. 

In other words, it provides for an exit from the capital once the company reaches a certain level of profitability and is firmly anchored in its market.

The term Corporate Venture Capital (CVC) is also used to designate funds held by large groups that wish to support young companies. The firms that form these CVC funds sometimes offer real support for startups. 

Beyond their desire to have a return on investment, large groups can also participate in the company's strategy and help it develop its business. 

Fundraising is dilutive: in exchange for their financing, the funds recover shares (sometimes very significant) in the company. The share recovered for a given financing is determined upstream by the valuation of the company.

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What are the different types of non-dilutive financing adapted to the company? 

Tax benefits

Some companies can obtain tax benefits. Often, these benefits take the form of tax reductions or exemptions to help start-up businesses get off the ground.

For example, we can mention approvals allowing the exemption of certain social charges or taxes such as the aid for the creation or takeover of a company (ACRE), the research tax credit (CIR) or the innovation tax credit (CII). 

The research tax credit (CIR) is a measure to support research and development (R&D) activities of companies, regardless of their sector or size. 

Companies that incur fundamental research and experimental development expenses can benefit from the CIR by deducting them from their taxes under certain conditions. The rate of the CIR varies according to the amount of the investment (30% below €100 million, 5% above). This benefit deducts certain expenses from taxes and is thus implemented at the end of the accounting period. It does not allow to obtain financing quickly.

The research tax credit is non-dilutive since it represents a sum charged against income tax or corporation tax. It concerns the year in which the research expenses were incurred.

Subsidies

In France, the government allocates a budget to support business creation. Subsidies can take various forms: material or financial assistance, social security and tax breaks. Several public public or private organizations provide subsidies for business creation.

In France, the State allocates a budget to help the creation of companies. Subsidies can take different forms: material or financial aid, social and tax relief. Several public or private organizations provide subsidies for business creation. 

Tech startups can benefit, under certain conditions, fromspecific aid offered by private or public organizations. For example, the Young Innovative Company (JEI) status is reserved for startups whose R&D expenses represent more than 15% of their costs. 

Grants are a non-dilutive type of funding.

The Loan

The most popular solution for financing without dilution is obviously the bank loan. 

Nevertheless, the steps to obtain a loan can be quite long and the amounts can remain quite low. This alternative will require a lot of energy, as you will have to convince the banks and most likely be refused. Indeed, banks usually support actors with at least 3 profitable balance sheets and tangible assets to put as a guarantee.

In order to obtain a loan, the partners must contribute sufficient equity capital. Your financing application must be complete, which is often more complex than one might think. This contribution must often represent at least 20% of the total financing. In addition, guarantees (personal guarantee, collateral, etc.) will be requested by the lending institution.

Among modern financing solutions, the unsecured loan stands out for its simplicity and flexibility, allowing companies to quickly obtain the necessary funds without having to detail how they will be used.

Merchant Cash Advance

Merchant Cash Advance (MCA) is a type of financing reserved for merchants. It is intended for business owners who accept credit card payments.

It allows you to obtain an advance on funds , usually through the company's credit card account. An MCA is not a loan, but rather an advance based on a company's future income or sales, via credit card. It is often used to finance a period of Bridge.

A small business can apply for an MCA advance and have that advance deposited into their account fairly quickly. This is non-dilutive financing.

Love money 

Love money is generally the first recourse for a start-up financing. The entrepreneur solicits his relatives, his family and his friends for a first donation. His donors benefit from tax reductions and exemptions. 

This financing is fast and non-dilutive, but requires a well-to-do entourage. Be careful, it can also be dilutive if, in exchange for their participation, the relatives get back shares of the company. 

Non-bank debts and loans 

Several non-bank borrowing solutions to finance your business in a non-dilutive way:

Factoring enables you to obtain advance financing by transferring your customer receivables to a specialized institution, which also handles collection. This solution rapidly improves cash flow while outsourcing the management of overdue receivables.

The letter of credit or documentary credit secures international transactions by offering a bank guarantee. This non-dilutive solution allows the company to pay only upon receipt of compliant documents, while reassuring its foreign partners.

The inventory financing offers the possibility of raising funds quickly by using inventory as collateral. This option preserves the company's autonomy while releasing immediate liquidity.

BPIFrance, the French public investment bank, offers a range of solutions to support the growth of French businesses: short, medium and long-term loans, unsecured loans, innovation loans and sector loans.

The debt funds are an alternative to traditional bank financing, offering direct loans to companies. These specialized funds often offer more flexible terms and faster appraisal processes than banks, while adapting to the specific needs of each business sector.

Lastly, leasing enables equipment to be financed in full, without any initial capital outlay. The equipment is purchased by a leasing company, which then makes it available to the company. Rental payments are tax-deductible, and a purchase option can be included in the contract.

Personal contributions

The company can be financed by thecontribution of the partners' or the entrepreneur's own funds. However, the funds allocated remain modest and it is not rare for the company to resort to love money. This type of contribution often takes place at the beginning of the adventure, when the company is created.

This contribution can be made in cash or by abandoning partners' current accounts to the benefit of the company. In this case, a clause of return to better fortune is set up and allows to recover the abandoned sums if the later situation of the company allows it.  

Campaign Credit

The seasonal credit is a short-term financing solution specifically designed to meet a company's one-off or seasonal cash flow needs. It therefore helps to guarantee cash flow throughout the operating cycle.

Crowdfunding

Crowdfunding platforms allow to collect donations to finance an investment project or a business creation. This method is adapted for brands and B2C offers. 

The advantage of a crowdfunding campaign is that it allows to federate a community of first users, called "early adopters". These donations are a way to finance the company in a non-dilutive way.

Crowdfunding

Another sub-category in crowdfunding solutions, crowdlending is a type of participatory financing in which investors lend money to companies. 

These loaned amounts - sometimes modest - may or may not call for an interest repayment. Just like crowdfunding, which collects donations, this financing is non-dilutive.

Honorary loan

The honorary loan, non-dilutive and at zero interest, is a regional loan, i.e. financed by the region in which the company is located. The recipient commits on his honor to pay back the loan 3 to 5 years after receiving it. 

The organizations granting loans of honor are associations in particular Réseau Entreprendre, France Initiative and Wilco. The amount can reach 90 000 €.

Commercial paper

Commercial paper commercial paper are negotiable debt securities issued by companies on the money market for a term ranging from 10 days to 1 year. In practice, the average life of commercial paper is very short, between 1 and 3 months. Commercial paper allows companies to borrow directly from other companies on a short-term basis without going through the banking system, obtaining terms very similar to those on the money market.

Self-financing

Self-financing for a company consists in using its own cash flow to finance itself. The company thus pays its expenses or invests, and this, without calling upon external financing. 

However, self-financing has a limit: once consumed for an investment, these funds must be reconstituted so as not to put the balance sheet out of balance.

The cash flow (CAF) is the difference between revenues and expenses. It refers to thetotal gross resources available to the company at the end of the financial year, i.e. cash surpluses. 

The self-financing capacity thus represents the internal financing capacity of a company. This type of financing is non-dilutive.

Revenue Based Financing (RBF)

Revenue Based Financing (RBF ) is an innovative, non-dilutive financing tool that provides cash flow based on a company's current and future revenues.

Revenue Based Financing (RBF) funds are transmitted on a virtual card that makes it easy to take control of the cash flow. The process is digitalized and fast: in only 48 hours, a company can receive funds.

The consideration payable is not an interest rate, but an annual percentage, generally around 6 to 10%, of the company's future income. The amount of the monthly payments is calculated based on the company's monthly financial results.

The amount is therefore flexible, unlike the monthly payments of a bank loan. Finally, the company that received the cash pays back the investor monthly over six, nine or twelve months. 

The type of loan we offer provides the opportunity to ensure sustainable growth, particularly by optimizing certain indicators such as the Cash Conversion Cycle. cash advances can also be considered as a quick supplement to cover temporary cash flow gaps, as part of an overall cash flow management strategy.

Karmen financing can also supplement fundraising or a bridge. While fundraising focuses more on long-term actions, Karmen financing can provide quick cash flow for short-term investments . It is a very attractive win-win strategy to implement.

How to choose the most suitable financing method for your company? 

The maturity of the company 

The size and stage of the company seeking financing is a key criterion. It certainly allowsthe company manager tomake a better choice of financing, but above all it has the consequence ofruling out certain options. 

The choice of available financing options is sometimes more limited depending on the size of the company. For example, applying for credit is very complicated for start-ups that do not have a convincing track record.

For their part, grants or crowdfunding are proving to be inadequate, or even insufficient, for large structures.

Type of business

The sector in which the company operates can also have an impact on its financing. Indeed, if the company is active in the restaurant business and has a negative Working Capital Requirement and does not require financing to run its operations, it can in theory finance itself.

The shareholders' agreement

One of the first and most important criteria in the choice of financing is the shareholders' agreement . It influences the company strategy and the vision of the founders or shareholders. 

Is it a family business with a shareholder base that is very reluctant to dilute the capital? In this case, the management will have more interest in taking on debt. 

The duration of the funding

The length of the financing period also plays an important role. 

Is it a company with a long-term investment strategy? Such a company might tend to avoid a public offering on the stock market, which is considered to be short-term, and prefer a bank loan or an equity investment.

The rate

Another constraint related to the company's financial structure is the cost of financing. Some financing options can be very expensive depending on how the organization has financed itself in the past. 

There are indeed rules of balance that must be respected in order to qualify for certain types of financing. These rules correspond, for example, to debt ratios to be respected or a certain repayment capacity to be reached. 

A company with a lot of debt will have to pay exorbitant interest rates if it wants to take out a new loan. This is important information to consider when choosing financing.

Covenants

Covenants are a way for the lender to protect itself by incorporating into the loan agreement covenants that must be met by the borrower.

These commitments may correspond to 

• When the borrower takes out certain insurance policies;
• Compliance with a debt ratio set by the bank.

If the covenants become too restrictive, then they will weigh on the choice of financing.

What are the advantages and disadvantages of each type of financing?

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Which financing should you choose according to the stage of development of your company? 

What are the most suitable financing options for setting up a business? 

The start-up phase of a business induces the first financing needs of a company. The financing obtained during this phase is generally used to design the product or service and develop the commercial offer.

The three means of financing recommended at the beginning of the activity are love money, microcredit and crowdfunding.

What are the most suitable financing options for urgent cash needs? 

When there is an urgent need for cash, it is necessary to resort to rapid financing solutions with responsive partners. Extend your runway is not easy and must be anticipated, with players specific to this demand. If the entrepreneur can count on friends and family, then love money is a good solution.  

What are the different types of medium-term financing for companies? 

The best medium- to long-term financing comes from business angels or VCs. The aim of these investors is to realize a capital gain on their investment. In exchange, they remain shareholders for around 5 years.

To determine the optimal amount of financing and the company's valuation, the discounted cash flow method is commonly used. This approach objectively assesses a company's value based on its future cash flows.

What are the different types of long-term financing for companies? 

Although there are also short term loans, the bank loan is the best way to obtain long term financing. Be careful, however: the longer the loan, the higher the interest to be paid back.

Which financing options are best suited to companies? 

While some financing involves a reduction in the percentage of capital held by historical shareholders, others are non-dilutive. The Karmen loan is a fast, non-dilutive solution for financing companies!

Companies have significant financing needs, first to design and launch an innovative product or service, then to accelerate in search of rapid growth. 

Conventional financing solutions such as bank loans are unsuitable for these companies because they have no tangible assets. As a result, digital companies are turning to new trends in corporate financing.

Depending on the needs and maturity of the organization, companies most often use love money, business angels, grants, crowdfunding, and fundraising to optimize their Customer Lifetime Value.

The venture capital and fund-raising are also essential steps for companies.

What types of financing are best suited to SaaS?

Karmen is an innovative short-term financing and factoring solution. It is a type of non-dilutive financing (no capital transfer in exchange) recommended for all French SMEs and micro-enterprises.

With Karmen, you benefit from a 100% non-dilutive, digitalized, and fast financing solution (in less than 48 hours!). This solution can help you replenish your cash flow, stabilize your growth, or even extend your runway. runway.

Moreover, for company valuation purposes, the Karmen loan does not impact EBITDA (Earnings before interest, taxes, depreciation, and amortization), as this financing is accounted for as a current liability.

Finding out if you are eligible is very simple! Connect your company's financial tools in read-only mode using our algorithm's open banking feature. Our goal is to objectively analyze your company's potential based on current and future revenues. 

Then, if you qualify, we will send you a loan offer within 72 hours. There are no hidden fees. If you are satisfied with the offer, you will receive the first transfer within 48 hours. 

Conclusion

Thus, financing is necessary for the company. It allows it to ensure its growth with, among other things, new innovative projects, the modernization of its equipment or the increase of its production capacities. 

There are many ways to finance your business. The most appropriate choice depends on several factors such as the size of the company, its strategy and its financial structure.