The different types of financing
Within the framework of its development, a company will call upon financing. It can be internal or external financing.
Internal funding:
For a company, it consists of using its own means and resources to finance its investment projects. It therefore corresponds to the company's capacity to finance itself.
Examples of internal funding opportunities include:
- The cash contributions of the partners, which are contributions in money;
- The contributions in kind of the associates, which are contributions of goods, other than money;
- Contributions in current accounts of the partners ;
- Self-financing (cash flow, profits ...).
External Funding:
In contrast to internal financing, external financing refers to all sources of financing outside the company.
External funding opportunities may include:
- The bank loan;
- The opening of the share capital to investors ;
- Leasing;
- Crowdfunding (or participatory financing).
In most cases of external financing, this involves bank loans or funds from investors or the financial markets.
Focus on stocks/bonds
- Common stock
Common stock is an ownership interest in the company and is entitled to a share of the profits (dividends). Investors hold one vote per share to elect members of the board of directors who oversee major decisions made by management.
These ordinary shares confer three rights: the right to dividends, the right to vote and the right to liquidation.
- Preferred share (PS)
Preferred shares are equity securities that give their holders different rights than common shares. Preferred shares provide some ownership in the company, but usually do not provide the same voting rights (this varies by company). Preferred shareholders generally enjoy a guaranteed fixed dividend in perpetuity. This distinguishes them from common shareholders, whose dividends are variable and never guaranteed.
- Bonds:
A bond is a claim (correlated to the loan) while a share is a holding of a part of the capital.
There are bonds convertible into shares, i.e. they can be exchanged for shares of the issuing company according to the terms and conditions set out at the time the bond is issued.
The actors of the financing
There are many players in the field of business financing and they vary according to the stage of development of the company. Here are the financing solutions that exist:
- The banks
The external sources of financing for SMEs and VSEs are essentially inter-company credit and bank loans.
- The "love money
This is the money that an entrepreneur can obtain from his entourage to launch his project and start his business.
- Honorary loans
Competition winners can be awarded honorary loans of up to a few thousand euros
- Business angels
As a natural person, the business angel invests money, directly or through an investment holding, in the capital of companies. He selects those that are innovative and have high potential.
- Crowdfunding (participatory financing)
This method of financing consists in gathering a large number of investors around a project to ensure its financing. The call for funds is made by means of an online platform allowing to collect numerous contributions of small amounts. The financing can take the form of a donation, a loan with or without interest, or an investment in capital.
- Private equity funds
These funds invest in the capital of unlisted companies at various stages of their development. The objective is to develop the company in order to generate a "capital gain" when the shares are sold a few years later.
- Financial markets
An IPO is a way to raise funds on a stock market.
Public players in corporate financing
Bpifrance
The public investment bank supports companies whose objective is to promote growth, competitiveness and employment.
Bpifrance can grant loans or take minority stakes in companies.
The Caisse des Dépôts et Consignations (CDC)
It is a public financial institution whose mission is to develop the economy of the territories, to contribute to the creation and development of very small companies, as well as companies of the social and solidarity economy.
