How to Choose the Right Financing for an Investment

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You can mobilize different types of financing, for all or part of your financing need.

Self-financing
In this case, your SME mobilizes funds at its disposal: equity, excess cash… This solution reduces the indebtedness of your SME accordingly. Your banker thus perceives your direct contribution to the project. However, self-financing has a limit: once consumed for investment, these funds must be replenished so as not to put your balance sheet in imbalance.

Leasing
It can be furniture or real estate, depending on whether you want to finance equipment (machine, vehicle, IT) or a factory, a store or a warehouse. It can also be a long-term rental. The principle is simple: you are not the owner of the property, it is the bank that acquires it and makes it available to you against the payment of monthly payments or rents if you opt for long-term rental.

Thus the investment does not weigh on the balance sheet of your SME, it is not recorded in the assets and there is no credit that appears in the liabilities, there is also no amortization to enter your accounting. This can, therefore, represent for your SME an option for simplified management of certain investments.

The loans
They are in the medium or long term (generally from 2 to 7 years for equipment, or from 8 to 15 years for real estate). They are used to finance all or part of your investment project, in addition to the self-financing that you can devote to it. Please note: your investment credit must be included in the liabilities in your balance sheet and the property you have acquired in the assets of your business, and also in the “amortization” part of your accounting.

Other types of financing
You can also mobilize other types of financing, rather with the capital of your company (seed capital, investment capital, development capital, venture capital, etc.). For these different cases, your partner will have more of an investor role than a lender, more clearly it will be present at the top of your SME’s balance sheet, alongside equity, with objectives to support your business over a period of more or less long term.

Provide possible guarantees
In support of financing by a medium or long term credit or by a leasing solution, your financial partner will certainly ask you to provide a guarantee. It thus allows the repayment of the credit, in the event of difficulty in paying your claim.

Your SME can, in particular, provide as collateral:

  • A pledge or a pledge, for example, the business of your SME, your stock, production equipment or shares of your company if it is in the form of a company;
  • A personal deposit;
  • A bank guarantee provided by BPIFrance or a mutual guarantee company (it may be specific to your sector of activity).

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