Are you dreaming of getting started, but finding financing to start your business seems like an insurmountable obstacle? This comprehensive guide is designed to enlighten you and give you all the keys to identifying and obtaining the financial resources you need to launch your project. From understanding your needs to the different sources of financing available, including the conditions you must meet, we’ll guide you every step of the way.
What needs does your start-up company need to finance?
Before you start looking for funding, you need to define exactly what your startup needs to finance. Understanding the nature and scope of these needs is the first step in establishing a relevant financing plan and convincing potential financiers.
These needs generally fall into several categories:
- Physical investments: The acquisition of durable goods essential to your business, such as your office, computer equipment, delivery vehicles, production machinery, etc.
- Intangible investments: Expenses related to intellectual property and launching your brand: purchasing patents, company creation fees, brand protection, software licenses, etc.
The funds will thus finance the operating cycle . In fact, the operating cycle of a company corresponds to the stages carried out from the purchase of goods to the sale of products, including the processing and storage of said products.
However, some banks are quite reluctant to finance certain needs. Therefore, it is imperative to study and plan all financing methods in order to establish a solid financing plan.
Financing business creation What are the conditions for financing?
Obtaining financing for your business creation project is not a matter of chance. Financial institutions and investors evaluate several key aspects of your project and your entrepreneurial profile.
The nature of the project
The viability and potential of your idea are paramount. Funders will carefully consider:
- The nature of your business: Some sectors are perceived as riskier or less promising than others.
- The sector of activity: the market attractiveness, competition, and growth prospects will be scrutinized. For example, an innovative project in a growing sector will have a better chance of attracting funding.
- Market fit: Does your offering meet a real, current need? In other words, it must be likely to interest a clientele. Solid market research or evidence of interest from future clients is a major asset.
Your knowledge as an entrepreneur
Your profile and your ability to carry out the project are essential
- Your skills and knowledge: Do you have the necessary expertise in your field of activity? Previous experience or the ability to surround yourself with experts is reassuring.
- Your motivation and commitment: Your determination and passion for the project will shine through and positively influence funding decisions.
The importance of a financial contribution
Your personal financial involvement often sends a strong signal to financiers. Investing your own funds (savings, “love money”) demonstrates your commitment and generally constitutes the company’s starting capital. A credible share capital is preferable to a symbolic minimum.
Therefore, it is advisable to avoid creating a company with only 1 euro of capital, even if this is legally possible. It is important to finance a business from its inception in order to anticipate potential problems or difficult launches.
Developing a solid financing plan
A key document to convince financiers: the detailed financing plan. It must list all of your needs (material, intangible, operating cycle) and define the different sources of financing envisaged.
Best Sources of Funding to Start Your Business
There are a multitude of ways to finance your business start-up. The ideal is to initially obtain equity financing. Afterward, it will be possible to apply for additional financing from a bank. Explore.
Equity financing
Equity financing is also called permanent financing or balance sheet financing . Equity generally consists of a personal contribution and that of your potential partners.
Personal contributions often come from savings (or savings), or from a family loan (called “love money”). The money provided by the manager (savings and family resources) allows for self-financing of elements of the project that are not taken into account by banks (market research, business creation formalities, initial cash flow, etc.), but also to reassure the bank from which the loan application is made.
Contributions from external partners are also considered equity financing. This involves soliciting private investors to participate in a company’s capital in exchange for a tax exemption on their income tax or wealth tax.
Fundraising from friends and family
When seeking funding, it’s common to start by soliciting funds from your immediate circle. This approach involves raising funds from family members, friends, or other acquaintances. This is commonly referred to as ” love money .” These financial resources can provide tax benefits, such as tax exemptions or reductions.
In the family context, a donor can offer up to €31,865 to a beneficiary without the latter having to pay any tax, provided that the following criteria are met:
- The donor must be under 80 years old;
- The beneficiary must be the donor’s child, grandchild,d r great-grandchild (or nephew or niece if the donor has no descendants);
- The beneficiary must be of legal age or emancipated.
This donation must be formalized by a notarial deed, a private deed,d r a declaration of donation. In addition, the beneficiary must inform the tax authorities of this donation within one month.
The professional bank loan
Conventional financing, such as through a bank, is often complementary to equity. Generally, banks require a 20 to 30% down payment.
The honor loan
There is also the possibility of finding business creation assistance or regional or national subsidies, depending on the nature of the project.
This type of loan is also characterized by the absence of a personal guarantee or surety. Furthermore, it generally carries a zero interest rate. It is also counted as the company’s equity. The amount granted can reach up to €90,000, particularly for innovative projects.
Several support networks, such as Initiative Frane, Réseau Entreprend, and the Association for the Right to Economic Initiative (Adi, offer this type of loan. However, obtaining these honorary loans is subject to rigorous selection and evaluation by a jury composed of professionals in the field.
The competitions
Many associations, foundations, educational institutions,n s an,t her entrepreneurial organizations organize competitions designed for business founders or new business leaders.
These competitions are sometimes targeted at specific audiences, such as young entrepreneurs or regional competitions,f or example. They can also target specific areas, such as digital technology, ecology, commerce, or the social and solidarity economy, for example. The rewards of these competitions often include financial prizes, but also the opportunity to gain visibility and meet potential partners and investors.
Microcredit is a solution for small needs
It is a financing method adapted to small businesses and specific projects.
Microcredits are typically offered by non-profit organizations.
For example, the Association for the Right to Economic Initiative (Adie) offers a financing scheme that can reach a maximum amount of €20,000, using microcredit for a ceiling of €10,000, in addition to an honorary loan or public financial support, among other options. The granting of a microcredit depends on several criteria:
- The project leader: their motivation, experience, skills, and other similar factors.
- The project itself: its location, its potential, its revenue forecasts, and other relevant aspects.
- The repayment capacity.
Crowdfunding Mobilize your community.y
Crowdfunding, also known as participatory financing, is a financing mechanism that allows resources to be mobilized from a wide audience in order to support a creative or entrepreneurial project. This process is generally carried out online, via the Internet. This method of financing is divided into three main forms:
- a loan;
- the subscription of capital or debt securities issued by the beneficiary company;
- a donation or contribution, possibly with a counterpart.
When choosing a crowdfunding platform focused on loans, whether interest-bearing or interest-free, or on the subscription of financial securities, this platform must have a specific regulatory status:
- About the subscription of securities, the platform must be approved by the Prudential Supervision and Resolution Authority (ACPR) as a participatory investment advisor (CIP ) or investment services provider (PSI) ;
- For loans, the platform must be identified as a crowdfunding intermediary (IFP).
Incubators and accelerators s valuable support
Incubators are entities that support business creation. By contacting an incubator, you can benefit from support to bring your entrepreneurial project to fruition over a period that can range from 1 to 3 years. In addition to their well-known role as providers of advice and assistance to entrepreneurs, incubators can also facilitate the meeting of investors interested in taking a stake in your company.
Diversity characterizes the nature of incubators. These structures can be public or private, affiliated with higher education institutions or local authorities, or linked to large-scale companies.
Online, it is possible to find sites that offer free directories of incubators to which it is possible to apply to receive support for a project.
Intercompany loans
Under the Law on Growth, Activity, and Equal Economic Opportunity, businesses have the option of acting as creditors or debtors to one another. Limited liability companies (SARLs) and joint-stock companies can now grant loans to microenterprises, SMEs, and mid-sized enterprises (ETIs), provided they meet certain conditions
- Lending companies must only offer these loans as a complement to their main activity;
- The duration of the loans cannot exceed 2 years;
- A loan agreement must formalize the loans granted.
- Companies must be able to demonstrate the existence of an economic link (for example, as direct or indirect subcontractors, part of the same economic interest group, or members of the same group awarded a public contract), thus justifying the granting of the credit.
