The different financing methods, how to compare them and choose the right one

Understanding the main financing methods

The term financing refers to all the solutions that enable a company to obtain the financial resources it needs to operate and grow. These methods fall into two main categories: internal financing (or self-financing) and external financing.

Self-financing is based on the company's ability to generate sufficient surplus cash to finance its investments or current needs. This solution is ideal for companies that are already profitable. But what to do when cash flow is not enough? You can already check whether your self-financing capacity is at its maximum potential with our list of 5 secrets for optimizing your self-financing. But if it already is, then you need to look at external financing and understand the different issues involved.

External financing methods include :

• Conventional bank loans
• Short-term loans such as overdrafts or overdraft facilities
• Factoring
• Leasing
• Capital contributions (business angels, venture capital, investment funds)
• Alternative financing (crowdfunding, participatory lending platforms)

Each of these modes meets specific objectives and presents different access conditions.

ℹ️ Case in point: By 2023, according to the Banque de France, bank loans accounted for almost 70% of external financing for French SMEs, while factoring was growing at an annual rate of over 8%, demonstrating the growing interest in alternative solutions.

Bank loans, leasing and factoring: what are the differences?

A bank loan is still the most traditional form of financing. It provides a sum of money repayable over a fixed period, with interest. This type of financing is often preferred for material investments or one-off cash-flow requirements. However, it is subject to strict criteria, such as the soundness of the financial file, repayment capacity and sometimes a personal contribution. We have dedicated a more detailed article to advantages and disadvantages.

Leasing offers the possibility of financing the acquisition of an asset (vehicle, machine, IT equipment) without immediately diverting cash. The company rents the asset for a defined period, then buys it at the end of the contract for a residual value. This type of financing is particularly suitable for recurring equipment needs, and we can help you with your online credit applications.

Factoring involves transferring invoices to a specialized institution, which then takes charge of collection and advances the corresponding funds. This solution enables you to improve cash flow rapidly, while protecting against late payment by customers.

Equity capital and investors: a solution for accelerating growth

If you're planning to expand your business on a large scale, equity capital via investors may be the right way to go. This solution involves opening up your company's capital to third parties (business angels, private equity funds, venture capitalists) in exchange for a share of ownership and, more often than not, strategic support.

This type of financing is particularly well suited to start-ups and innovative companies with high growth potential. It provides substantial financial resources without burdening the balance sheet with debt, but implies capital dilution and sometimes a partial loss of decision-making autonomy. For raise equity capitalThere are a number of steps to follow, and you need to choose your investors carefully.

ℹ️ Case study: In 2024, SaaS company Yousign raised over 30 million euros from specialized funds to accelerate its conquest of the European market, illustrating the power of equity financing in scale-up phases.

Alternative financing: crowdfunding and participatory lending platforms

Faced with the rigidity of banking solutions, alternative financing methods are enjoying remarkable growth. Crowdfunding, or participatory financing, enables funds to be raised from a broad public via online platforms.

Participatory lending platforms, meanwhile, bring together companies and individuals wishing to invest their savings in the real economy. These solutions are attracting more and more entrepreneurs, not least for their speed of implementation and flexibility.

• Advantages of crowdfunding :
  • No capital dilution (in the case of loans or donations)
  • Communication and brand awareness
  • Rapid collection
• Limits to anticipate :
  • The need for a solid marketing campaign
  • Platform costs can be high
  • Uncertainty over the amount collected

Advantages and disadvantages at a glance

Criteria for choosing a financing method

Every business is unique, and the choice of financing method must take several parameters into account. Before making a commitment, ask yourself the right questions: Do you need funds quickly, or can you wait several weeks? Are you prepared to open up capital, or would you prefer to take on debt? Can you afford a new loan?

Here are some decisive criteria to consider:

• Amount required and duration of financing
• Total cost (interest, expenses, dilution)
• Quick access to funds
• Impact on capital structure
• Flexibility and adaptation to growth

A detailed analysis of your operating needs is essential to avoid increasing your debt unnecessarily. And don't hesitate to consult a financial advisor to evaluate possible scenarios and optimize your strategy. After all, isn't it essential to anticipate risks and guarantee the long-term future of your business?

Karmen Loan: a flexible, fast solution for financing your growth

We launched Karmen Loan to give ambitious companies like yours access to flexible loans ranging from €30,000 to €5 million, with terms from 1 to 24 months. Our aim? To offer you a simple, fast and personalized alternative for financing your inventory, working capital, marketing campaigns or operational expansion, without the red tape and delays inherent in traditional banks.

Thanks to our expertise and our technology, you benefit from a response within a few hours and tailor-made support. We understand that every project is unique: that's why we tailor our terms to your real needs, so you can seize every market opportunity. Simulate your cash flow with a Karmen loan:

"Innovation isn't just about creating, it's also about finding the resources to move forward faster than others."

Conclusion

Ultimately, the wealth of financing methods available today offers companies an unrivalled range of options to support their development. Whether you opt for bank financing, the entry of new investors, or more innovative solutions such as crowdfunding, it's crucial to carefully analyze the implications of each choice and remain agile in your strategy.

Never forget that the best financing is the one that really adapts to the reality of your business, your ambitions and your pace of growth. So, what type of financing will you choose to take your business to the next level?