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The guide to business financing

The guide to business financing

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

Baptiste Wiel COO Karmen
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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. 

By financing, we mean all the financial resources, both internal and external, available to a company. These resources provide the company with the necessary means to carry out its activity, invest in new projects, develop, recruit, etc. 

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.

Thus, the financing need of a business may correspond to theinitial investment to start the activity. For example, a merchant needs funds to buy his business. On the other hand, an e-merchant will need financing to attract visitors to his website.

The need to finance businesses is also driven by specific investment needs such as renewing equipment, upgrading facilities, developing new products or services, or increasing production capacity. These costs of goods are, in most cases, exponential and require financing before they are implemented.

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 a positive WCR, and need to finance their operating cycle before they can collect cash. They need to finance their business on an ongoing basis, and this need is much greater when the company is growing.

Unlike some companies that find their customers right away and do not need to make large initial investments, some organizations do not have the ability to finance themselves immediately and have a significant need for financing. Indeed, businesses where the company must pay suppliers before getting paid by its customers often have a positive working capital requirement. This type of business will always need financing. In particular, the larger the company grows, the more important this need will be. 

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

Just as a digital start-up needs capital to launch its business and develop its products, many VSEs, SMEs and marketplaces need capital to launch and grow. For example, an e-tailer will need financing to attract visitors to its website, and to produce and acquire stock. A start-up developing 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.

In the marketing phase of its services, SaaS starts to register monthly or annual subscriptions and needs cash 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 company allows you to invest and carry out strategies that are crucial to the company's development. Without financing, there will be no recruitments, no investments, no customer acquisition, no product development or 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 can be distinguished: the so-called dilutive solutions, and a contrario, the 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 maintain control over your business, it does have a cost. For example, the loan implies the payment of interests or commissions.

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


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 "angel investor" is an independent person who invests his personal funds in a company. Generally, thanks to their network and experience, Business Angels also provide advice to the project owner. 

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 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.

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.


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 make a sufficient equity contribution. Your financing file must be complete, a task that 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, pledge, etc.) will be requested by the lending institution.

Merchant Cash Advance

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

It provides an advance of funds through the company's credit card account in most cases. The MCA is not a loan, but rather an advance based on future revenues or sales, through a company's credit card. It is often used to finance a bridge period.

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 

There are non-bank borrowing solutions that allow you to finance your business in a non-dilutive way. 

We can indeed mention factoringwhich is a technique for financing and collecting receivables implemented by companies. It is based on obtaining advance financing and consists in subcontracting this management to a specialized credit institution

We can also mention the financing solutions made available by BPIFrance, a public investment bank that acts as a complement to the market to meet the various financing needs of companies. 

It provides financing and guarantees to support the growth of French start-ups: short, medium and long-term loans, leasing, unsecured loans, innovation loans, and sectoral loans.

We can also mention leasing, also called "leasing", which allows to finance 100% of the equipment without making any contribution. Generally speaking, the manufacturer sells its equipment to a leasing company. The latter rents the equipment to the company for a fixed period of time

Equipment rental contracts may include a purchase option. The transfer price of the equipment at the end of the contract is then indicated in the document. Rents are deductible from the company's taxable profit, which allows the company to benefit from a tax advantage on the rented equipment.

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.  


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.


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 €.


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 of a company is the difference between the income received and the expenses generated by its activity. It refers toall the gross resources available to the company at the end of a 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 to be paid is not an interest rate, but a annual percentageusually around 6 to 10%, on the company's future revenues. The amount of the monthly payments is calculated according to the monthly financial results of the company.

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. 

Revenue Based Financing (RBF) offers the opportunity to ensure sustainable growth, in particular by optimizing certain indicators such as the Cash Conversion Cycle.

The RBF can also complement a fundraising or a Bridge. Indeed, if the fund raising is more focused on long term actions, the RBF can bring a quick cash flow for short term investments. This is a very interesting 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 is sometimes more limited depending on the size of the company. For example, access to credit is very complicated for financing start-ups with no 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. 

Does the company urgently need short-term cash to finance its operating cycle? In that case, you should turn to quick solutions such as RBF.

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 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?

Financing method Benefits Disadvantages
Love Money Fast Need for an entourage with funds, dilutive
Business Angel Fast and supportive Need for a network, dilutive
The RBF (Karmen) Fast, non-dilutive Only for growing companies
Venture Capital Credibility and support Time consuming process
Honorary loans The amount can be up to 90 000 €, non-dilutive Time-consuming process and limited amount
Microcredit Easy to access. Non-dilutive Generally small amounts
Crowdfunding Non-dilutive, free or with low interest rates, mobilizes a community Long process
Crowdfunding Mobilizes a community Long, dilutive process
The MCA Fast and non-dilutive Reserved for merchants
The bank loan Non-dilutive Requires collateral, not easily accessible
Grants and tax benefits Non-dilutive Potentially time-consuming process and limited amount
Non-bank debt Non-dilutive Time-consuming process and limited amount
Self-financing Non-dilutive and does not require interest or repayment Absorbs the available cash in the company

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? 

In case of urgent need of cash, it is necessary to resort to fast financing solutions with reactive partners. Extending one's runway is not easy and must be anticipated, with actors specific to this demand. If the entrepreneur can count on friends and family, then love money is a good solution. 

However, the FBR is by far the fastest funding tool

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

The best medium- or long-term financing corresponds to equity investments by business angels or VCs. The objective of these investors is to realize a capital gain on their investment. In exchange, they stay in the company's capital for about 5 years. 

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? 

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

Restrictive financing solutions such as bank loans are proving unsuitable for companies with no tangible assets. As a result, digital companies are turning to new trends in business financing.

Depending on their needs and the maturity of their organization, companies often turn to love money, business angels, subsidies, crowdfunding and fund-raising to optimize their Customer Lifetime Value.

The venture capital and fund-raising are also essential steps for companies. Increasingly, however, they are turning to Revenue Based Financing (RBF), in search of financing that is easy to access, fast and non-dilutive.

What types of financing are best suited to SaaS?

Karmen is the solution for Revenue Based Financing (RBF), an innovative form of financing based on the project owner's future revenues. It's a type of non-dilutive financing (there's no transfer of capital in exchange) favored by tech and Software-as-a-Service (SaaS) startups.

With Karmen, French SaaS start-ups benefit from a 100% non-dilutive, digitalized and fast financing solution(in less than 72 hours!). This solution can notably allow them to replenish their cash flow, stabilize their growth or extend their runway.

In addition, for the valuation of the company, the use of Revenue Based Financing (RBF) does not affect EBITDA (Earnings before interest, taxes, depreciation, and amortisation) because the Revenue Based Financing (RBF) is recognised as a current liability.

To find out if you are eligible, it's very simple! Connect your company's financial tools in read-only mode thanks to theopen banking of our algorithm. Our objective is to analyze your company's potential objectively, 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. 


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. 

While some types of financing involve reducing the percentage of capital held by historical shareholders, others are non-dilutive. There's a fast, non-dilutive solution for financing companies: Revenue Based Financing (RBF)!

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