Funding options for French businesses
There are 3 main categories when it comes to raising money for your company:
Start-up capital (the equity of your company on the day it is created), Fundraising (finding people or companies to invest in your business in order to build up your equity. As such, this does not concern you if you create a sole proprietorship and Borrowing (it’s what allows you to meet the expectations of your funding plan if your equity isn’t enough)
Before anything, it’s important to note that while, by definition, borrowing money means that the money will be paid back (with added interest), in fund-raising, the company doesn’t give you your money back unless it’s activity is stopped. Instead, investors are compensated when they sell their shares and make a profit. As such, this money stays in the company and can reassure other investors.
Summary:
- Start-up capital
- Fundraising
- Borrowing
Start-up capital
This is the capital that you’ll use to pay your first expenses and to fund what banks won’t help you with. For example, it’s very rare for French banks to help you with the Working Capital Requirement (WCR).
This is also the capital you can use to get a loan. Indeed, it is just about impossible to get banks to take you seriously if your company doesn’t even have enough equity. Generally, banks consider that businesses need at least 30% of their funds to come from equity.
| The money that you and your associates can bring in to the company | · Your personal savings
· Employee savings plan/Collective savings plan (PEE, PERCO? PEI) · The ARCE (Aid to the Takeover and the Creation of a Company) – it’s given by the French National Employment Agency, called “Pôle Emploi”, and goes up to 45% of the unemployment aid you’ve yet receive · Help from your relatives in the form of donations – if the one who makes this donation is your parent, grandparent, or great-grandparent, then it can be exempt from tax (learn more) |
| The money to complete your initial capital if it is not enough | · Honor loans – these are loans with a 0% interest rate to help undertakers build up their equity. Though in order to get such a loan, your project must be detailed, and you have to present it to a committee of local business leaders. If you’re selected, then another entrepreneur will sponsor you and help you through your project. Having an honor loan is a great help, because it reassures potential partners and banks. As such, it has a significant leverage effect.· Something to keep in mind: an honor loan is always coupled with a bank loan. Thus, if you do not have access to a bank loan, the Adie will give you an honor loan of up to 3000€ with a micro-loan.· You can also obtain “personal baking loans”, but for that, you need to contact your banker. |
| Additional money | · Donations via crowdfunding platforms – on top of granting you funds, this also allows you to test your market and your customer’s reactions to your product. Depending on the platform, these donations can be without compensation, compensated with small symbolic products, or compensated by the main product itself. (learn more)
· Prizes obtained with national or regional business creation competitions. However, winning can also help you make yourself known, get you used to present your project, and even help you stand out to potential business partners. · Subventions – certain national institutions such as “Cap Jeunes” or “French Bourse Tech” grant subventions to certain entrepreneurs. Sometimes, local institutions will also help entrepreneurs in order to promote company creation in the area. |
Fundraising
Again, if you’re creating a sole proprietorship you don’t need to worry about this step. Basically, here, you’re going to be looking for people who would be willing to invest in your company. Who are they?
| Individuals | · “Love money” – your relatives can contribute directly to the equity of your company, and even “lend” money to the company by using an associate current account
· Investment groups specialized in business creation projects · Solidary venture capital companies · Equity Crowdfunding – certain crowdfunding platforms allow participants to invest directly in companies that aren’t interesting to typical investors
Something worth remembering: contributing to the equity of a company can reduce your income tax by 25% of the amount invested (under certain conditions). |
| Business angel Investors | They finance mainly:
· Innovative projects · Projects with a high growth potential Not only do they bring money to companies, but they also contribute with their knowledge, their experience or their contacts to help to settle on the market |
| Venture capital funds | These funds mainly come into play for innovative companies with a high growth potential or for developing existing companies. Their goal is to come into the equity of the unlisted company and boost its growth with a significant contribution, thus allowing for a leverage effect. These funds can be either public or private. |
Borrowing
Obviously, many business creators turn to bank loans sooner or later. However, it’s easy to forget that other parties may be willing to lend you some money.
| Banks | They should help you fund your project if you:
· Have enough equity · Can offer them some guarantee: your personal guarantee, guarantee funds, mutual guarantee companies… You should note that: for your assets, your equipment, you should consider equipment leasing; it could be an interesting solution for companies who do not want to resort to bank loans. Of course, the same goes for property and real-estate leasing. |
| Solidary Financers | They’re for undertakers who either:
· Didn’t get all of their funds from the banking system · Undertake in the social and solidary fields
The main ones are: · The Nef, a solidary finance cooperative company. It mainly funds ecological, social or cultural companies · The solidary fund, a financial organization who just extended its activity to all of France |
| Microcredit organizations | They’re for creators of small projects who can’t find funds in the traditional financial system because they can’t offer enough guarantees.
On top of giving very service, a regular credit organization would offer, they also accompany you in your project. The main ones are: · The Adie, which can fund up to 10 000€ of a project · “Parcours Confiace”, an organization linked to the “Caisse d’epargne”, who also gives microcredits |
| Associates | When the company is in need of funding, mostly because it doesn’t have enough cash, it can ask its associates to lend it the money it needs. This is noted down in the “liability” side of the balance sheet, in the “current accounts of associates” category.
The associate then has a debt obligation in regards to the company, which I paid back and compensated by interests. Something to note: These current accounts can be considered to be “almost-equity” when they’re blocked. |
| Crowdlending | Crowdlending is a particular type of crowdfunding. Here, specialized platforms allow people to lend you money, rather than just make donations. |
| Bpifrance | Bpifrance is a Public Investment bank. Its mission is to complete the funding offered by the market, in order to fulfill the funding needs of companies. It offers businesses funding options at each important step of their development and even has special offers per region.It’s also arguably the most important factor when it comes to innovation. Bpifrance helps companies from their initiation to the moment they’re listed on the market. It’s present in 42 regions, and can help you by with grants, equity, guarantees… |
