Creating a Business: Bank Loan, the Only Option for Entrepreneurs?

Creating a Business: Bank Loan, the Only Option for Entrepreneurs?

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When creating a company, entrepreneurs often resort to bank loans. It makes it possible to obtain financing and start its activity. However, other solutions exist today and can be used in addition. We evaluate your options in the rest of this article.

Things to know about bank loans

Even today, entrepreneurs are used to taking bank loans to finance the creation or development of a business. But before getting a loan, some information must be taken into account. First of all, the bank seeks to reduce risks and thus improve its profitability. It must be said that its role is to finance the economy, and therefore a great weight rests on the shoulders of the bankers. On the other hand, financial institutions are obligated to respect the ratios of capital as compared to the credits granted. The remaining goal is the ability to respond in the event of a financial crisis. Since it is not uncommon for entrepreneurs to take out several loans, they also have the option of credit consolidation. A process that can be done with your lending institution, but also online through Partners Finances or any other specialized site that allows you to reduce your monthly payments. Thus, entrepreneurs have more freedom to invest in new technologies, for example.

You should not make mistakes when negotiating a loan

When an entrepreneur negotiates a loan, he must be careful not to make certain mistakes. So he should not be in a hurry. It is better to prepare your project ahead of time, so that it is complete and can be accepted by the bank or any other lender. In addition, the amount to be borrowed should not be underestimated, since it is he who ensures the proper functioning of the company. However, entrepreneurs often tend to underestimate their needs in order to reduce their debt. However, a good estimate will:

  • Make the file trusted with partners and funders.
  • Securing the start of the activity.
  • Simplify obtaining financing.

However, solutions other than bank loans do exist and deserve business leaders to know.

Other financing solutions

Among the other solutions available to business creators, we find crowdfunding. This technique, also known as crowdfunding, involves raising money from a large audience. It is aimed at people who do not have sufficient resources to carry out a business creation or acquisition project. It is also intended for future leaders who do not want to use a banking institution. The goal is to be funded by third parties. Crowdfunding can be found in three forms:

  • Subscribing to equity or debt securities issued by the backed company.
  • Loan.
  • A contribution or donation may result in a consideration.

If you resort to this type of platform, make sure that it has a regulated status and is marked “Participatory financing platform regulated by the French authorities”. In addition, initiating crowdfunding requires knowing the motives for this type of funding. It is therefore important to obtain information before launching a crowdfunding campaign.

investment funds

Another option is to turn to investment funds. They are approximately 300 in France and are grouped into the Association of Investors for Growth. Shareholders who are part of it take an equity stake in unlisted companies most of the time. So they have a role in determining the long-term strategy that the company will adopt. Concretely, investment funds can intervene at five levels:

  • Business creation and financing of new technologies.
  • Companies with high and growing development potential.
  • Difficulty in acquiring companies.
  • Business transfer, acquisition or sale.
  • Infrastructure financing.

On average, investment funds amount to 5 million euros per company and rarely less than 250 thousand euros. The partnership is generally established for a period of 3 to 7 years.

Finally

Therefore, a bank loan is not the only means of financing the establishment or development of a business. If it is widely used, then its award depends on the banking institution to which the application is submitted. Among the alternative solutions, we find crowdfunding, as well as investment funds. However, it is not the only one and other options such as honor loans, contests or even business incubators and business angels can now be used. It remains to determine what is the most realistic and effective solution for each entrepreneur.

Anis Lamarge


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