Business loans for French companies
When compared to other countries, due to high regulation, banks in France aren’t always very cooperative. This applies when trying to open a business bank account, and, of course, when requesting a loan. As such, the general rule is that if your project is well-prepared, coherent, and pushed by motivated people, banks won’t mind giving a loan.
However, if your project doesn’t have a balanced funding plan, or if your market study isn’t convincing, then banks aren’t going to be inclined to help you. Makes sense, right?
Summary:
- What you need to know
- The main things you need to be careful about
- What to do if the bank denied you your loan
- The terms of obtaining a loan
- What should not do
What you need to know
A bank is basically a company whose role is to finance the economy with public and private undertakings. Of course, just like any company, its goal is to minimize risk and maximize profit.
Furthermore, after the economic crisis of 2008, the “Bâle III” agreements tightened the regulations around banks. Now, they cannot give out more loans unless they keep a certain proportion of equity. This is to consolidate these structures if another financial crisis ever happens.
Because of all this, French banks are extremely careful when handing out loans. Generally, they don’t like to risk more money in a project than the creators themselves; and in a similar fashion, they prefer to spread the risks among as many partners as possible so that negative effects stay limited.
This is why project creators can find it very difficult to obtain a loan. Often, their projects are judged:
- Too ambitious
- Presenting an unbalanced funding plan
- Pushed by creators who don’t have enough experience for the bank
- Not having enough equity
- With a product that doesn’t meet the needs of the market
- Etc.
Of course, each financial structure has its own criteria for judging if a project deserves a loan or not.
The main things you need to be careful about
Minimal contributions:
Generally, balancing your personal contributions with bank loans is recommended. You’ll probably want to have at least a 50/50 ratio, but some banks are satisfied with you only funding 30% when the risks are “limited”. As such, if there’ one thing you need to keep in mind, it’s that the higher the equity you can bring, the higher the chance of the bank granting you a loan.
As such, it might be worth considering asking relatives for a bit of financial help. This does grant them tax benefits!
Competition:
Remember to compare the offers of different banks, since their terms (interest rates, duration of the reimbursement, etc.) vary from bank to bank. Not only will this allow you to find the best offer, but you will also have multiple options if a bank refuses to give you a loan.
You should keep in mind that banks can take anywhere from days to weeks when examining your project, depending on the size of the bank, the nature of the project, etc.
As a tip: if you need a very high amount of funds to get your project started, you might want to consider getting the help of a broker. If you do, the banks that will receive your projects will be assured that your project will have been examined by a professional, and you will have the certainty that at least some banks are going to be interested in your project.
The granting of the loan:
No matter the bank, and no matter the project, the decision to grant you a loan will always be motivated by concrete factors, such as the business plan. But that’s not all. Indeed, business plans are always based on more or less credible hypotheses. In order to maximize the chances of obtaining a loan, you should always make sure that your hypotheses are as realistic as possible, especially when it comes to the Working Capital Requirements (WCR). Thus, it’s best if these are always supported by facts, documents, data, etc. Though, your ability to manage that is also one of the primary criteria for the banks.
If you don’t want to be stressing out about waiting for the confirmation of your loan, you might want to ask your banker when they will give you your answer.
You should also keep in mind that the main concern of the bank is whether or not you will pay back your loan, so basically, whether or not you will be able to generate enough money. You will thus have to convince the banker by showing that you are “compatible” with your project.
Diversifying funding sources:
Since banks want to spread the risk of a project as much as possible, you might have to find different sources of funding for your project. These could be, for example:
- “Honor loans” – loans with a 0% rate given by national agencies
- A “banking pool” – having multiple banks supporting the same project
You should also remember that some organizations specialize in being a guarantee for banks. For example, there’s FranceActive, Siagi, BpiFrance, etc.
What to do if the bank denied you your loan
You shouldn’t take a refusal as a failure, and more so as a way to reflect more on your project. Theoretically, banks are supposed to give you their reasoning as to why they did not grant you a loan.
As such, in these cases, it might be worth your time to contact a coaching organization who can verify your hypotheses with you and give you suggestions.
The terms of obtaining a loan
The loans you will obtain when creating a company will generally last from 2 to 7 years. If they’re to acquire property, then they might last 15 to 20 years, though.
What do banks finance?
Of course, it depends on the bank, so defining a general rule can be difficult, but they do tend to prefer durable goods, such as transport, software, machinery, etc.
What this means is that you will rarely find a bank willing to help you fund your core activity.
The required guarantee
When they grant loans, banks will often ask you to give your personal guarantee.
Even when it comes to property, where banks usually go for “pledging” to reduce risks, you will often still have to give your personal guarantee. The amount of the guarantee not only depends on your personal assets, but also on the amount of the loan.
As a tip, you should probably get familiar with guarantee devices that were put in place to facilitate obtaining a loan. Knowing them well will definitely make you have a much easier time.
What you should not do
Minimizing the amount of money you need to get your project going:
Often, creators will underestimate their needs to avoid getting too much into debt. However, if you instead have an accurate analysis, you will:
- Be safer when beginning your activity, since you will be more protected from gaps in cash flow
- Have a more realistic project when contacting funders
- As such, you will obtain funding more easily
Acting rashly:
Make sure you take your time when preparing your project. Your presentation has to be clear, detailed, precise, neat… Basically: it needs to be attractive!
Intimidated by this presentation? Here’s how to talk to your banker for your business creation project!
