Medium and long-term financing methods

Among the medium and long-term financing methods used by companies, we find :

  • Capital increase through private equity.
  • Self-financing: this assumes that the company's cash reserves are sufficient to finance growth without putting the rest of the business at risk.
  • The current account of associates: the advance in current account of associates can be defined in a very simple way, as a loan granted by a partner or the director towards his company. It allows to temporarily advance money to the company and to increase its equity capital, without having to respect the formalism of the capital increase.
  • The bank loan: this operation is generally complementary to other sources of financing. The bank loan requires a solid business plan to present to the banks, as well as an acceptable debt ratio.
  • The alternative financing or "crowdlending": anglicism meaning "participative loan". It allows a company (VSE or SME) to benefit from financial support from a large number of people who have decided to finance the project in return for a return (or not) on the risks taken.
  • Long-term rental or leasing: these are two investment financing methods. They allow you to rent an asset over a certain period of time rather than buy it.

 

Advantages and disadvantages of medium and long-term financing methods

To complete this overview, you will find below the advantages and disadvantages of these financing methods most commonly used by companies.

Medium and long term financing

Type

Means of financing

 Benefits   

 Disadvantages    

Equity  Capital increase through private equity Maintained financial autonomy Dilution of capital. Loss of power in governance
No financial costs
Increase in working capital Depends on the financial capabilities of the current shareholders
Self-financing Maintained financial autonomy Depends on the company's results and therefore random
No financial costs Requires mobilization of reserves - May weaken the company
External financing   Bank loan Increase in working capital - no capital dilution Payment of interest - personal guarantees
Tax deduction of interest Increase in debt => loss of financial autonomy
Leasing Flexible device without any input Additional fees higher than the bank loan
Purchase at the end of the contract possible Type of assets that can be financed limited to physical assets
Deductible royalty (rent) considered as operating expenses
No impact on the balance sheet on the unadjusted debt level (functional balance sheet)