Debt funds: understanding and optimizing this financing lever for companies

What is a debt fund?

A debt fund is an investment vehicle that enables you to obtain loans for your company, often outside the traditional banking circuit. Unlike traditional bank credit, it relies on institutional investors or specialized funds. What's in it for you? It offers you an effective complement to your usual financial resources, enabling you to manage your capital requirements and working capital needs through a flexible arrangement.

By mobilizing a debt fund, you need to anticipate and manage your cash receipts and disbursements as effectively as possible, while controlling your payment times to limit the impact on your cash flow. Using this solution also means arbitrating wisely between different self-financing tools: it involves additional debt without diluting equity. The debt fund thus complements bank discounting or leasing, without distorting your capital structure.

Comparison with other financing options

The debt fund competes with traditional borrowing, participatory financing, but also with solutions such as factoring, income from leasing, and operating surplus. Your main objective remains to guarantee sufficient liquidity to finance your needs, inventories or fixed assets, while at the same time supporting the growth of your outstandings.

ℹ️ Let's take the case of an industrial SME that needs to finance a strategic acquisition. Thanks to the debt fund, it can act without waiting for a banker's green light, release the funds quickly and keep a clear view on its repayment schedule.

To explore other financing solutions suited to your situation, you can consult our guide to non-banking alternatives.

The advantages and limitations of the debt fund compared with other solutions

The debt fund is ideal for financing your urgent needs, improving your current account monitoring or dealing with delays in collection that weaken your company's cash flow. Its main advantage is that it offers you the flexibility not always available with a bank loan, which often imposes strict forecasting constraints or lead times that are out of sync with your imperatives. The debt fund can be adapted to every situation: to finance inventories, cover temporary needs or manage a stressed income statement.

Strengths and areas for improvement

With a debt fund, you benefit from a number of advantages: rapid availability of funds, no dilution of your equity capital, and compatibility with both business start-ups and long-term financing. In this way, you can roll over your cash positions and optimize your outstanding ratio. However, it is essential to keep a tight rein on your commitments, monitor due dates and regularly adjust your forecast projections to avoid any excess indebtedness.

ℹ️ Imagine a SaaS company that combines equity, self-financing and debt. This combination enables it to recruit rapidly, while preserving its corporate governance. Disbursements are smoothed out in several instalments, keeping the income statement in balance.

Bear in mind that the cost of a debt fund is often higher than that of a conventional loan. On the other hand, it ensures a rapid response to fluctuations in your business, in the event of major payment delays or a sudden increase in your financing requirements.

Debt funds: access conditions and strategic uses

To obtain a debt fund, you'll need to present a solid forecast, a good level of liquidity, and a clear circuit for your cash receipts and disbursements. This leverage is invaluable for responding to financing peaks linked to your inventories, fixed assets or outstanding customer debts.

When to use the debt fund?

The debt fund is ideal if you want to :

• Strengthen your working capital requirements over the long term.
• Finance a project without losing control of your equity.
• More flexibility than leasing or bank discounting.
• Prevent customer payment timing differences or liquidity delays.

ℹ️ If you're a wholesaler and you're faced with longer customer payment terms, while your inventory is increasing, the debt fund can cover this gap. This mechanism secures your financial resources and stabilizes your cash flow, fully fulfilling its role as a business financing lever.

The entry ticket starts at €300,000, sometimes less for VSEs or SMEs with robust forecasts. Debt funds can thus act as a complement to your traditional banker.

To help you get ready, consult our guide to putting together a financing file.

Karmen: short-term financing to support your ambitions

To help you meet these challenges and seize every opportunity, we have launched Karmen Loan: a solution for short-term financinga customized, digital short-term financing solution for cash management, working capital financing and inventory purchases.

Why choose Karmen Loan?

• Access loans from €30,000 to €5 million, with terms from 1 to 24 months.
• Take advantage of a fast, paperless process to anticipate your disbursements.
• Benefit from automated tracking of each due date to manage your financial resources.
• Rely on self-financing support for your growth, working capital requirements or the financing of new fixed assets.

With Karmen Loan, you can optimize your forecasts and finance your needs quickly, while keeping control of your income statement. There's no need to wait for a banker's approval: you can act whenever you like, without having to wait for the usual loan deadlines.

Best practices for structuring and managing your debt fund

To make the most of your debt fund, we advise you to anticipate your cash receipts, strengthen your liquidity and ensure reliable management of your cash requirements. Controlling your accounts receivable, limiting delays in collection and clearly defining your cash utilization plans are all ways of securing each payment.

Structuring your financing

• Carry out a strict audit of your disbursement and collection cycles to adjust the amount drawn.
• Model the impact of debt on cash flow in your forecast.
• Negotiate the duration and terms of borrowing, and the relationship between the debt fund, self-financing and existing loans.

ℹ️ A CFO uses cash flow forecasting to draw down tranches of funds according to the timing of cash receipts, thus avoiding overloading his balance sheet with unnecessary borrowing.

Careful monitoring enables you to seize any opportunities for surplus or one-off needs, and to adapt your debt structure to changes in outstanding receivables or fixed assets to be financed. By regularly re-examining the balance between debt, equity and self-financing, you can maintain a sustainable trajectory.

To perfect the management of your financial circuit it is necessary to follow its cash conversion cycle.

Conclusion

The debt fund profoundly changes the way you can manage your company's financing. It enables you to manage your working capital requirements, finance your inventories, anticipate payment deadlines or react rapidly to unforeseen cash flow problems. Its success is based on a well-prepared application, clear forecasts, careful management of receivables, and a comparative analysis of borrowing terms and conditions.

Don't suffer from lack of liquidity or uncertainty about your current account: structure your financing with the debt fund and benefit from Karmen's support to boost your company's growth.

Finally, if your needs call for new projects or capital expenditure, the debt fund can be used in conjunction with other solutions to finance your investments. and build a solid, scalable financial structure.