Loans, renting and subsidies: All types of financing that a business can access | be where you are

Companies tend to resort to external financing frequently, either to invest in a new line of business, boost one that is already underway, overcome an economic downturn or manage day-to-day liquidity, that is, meet expenses currents. To achieve this, the most common formula is usually a bank loan, both short-term and long-term, according to Jesús Reglero, director of the Master’s in Financial Management at OBS Business School. But there are other solutions and tools that strengthen the ability to manage the daily activity of a company, in short, the payment and collection of invoices and protect against any unforeseen event.

Long-term financing channels

Companies with greater difficulties in accessing bank loans have at their disposal other pathways to obtain financing long-term. This is the case of mutual guarantee companies (SGR) and public subsidies.

SGR. Sometimes companies do not have endorsements enough to access the financing they need through the bank. For these cases, the SGR offer this guarantee and, in addition, allow small and medium-sized enterprises (SMEs) and the self-employed to obtain capital under more favorable conditions than those of the usual loans, such as lower interest rates and longer repayment terms. They are especially useful in approving large loans, in the opinion of Eloi Noya, financial adviser and professor of Capital Markets, fintech and Finance for Entrepreneurship from ESADE.

SGRs do not lend money, but rather provide the guarantees that companies need to obtain it. The Government’s Recovery, Transformation and Resilience Plan (PRTR), which articulates the aid from the European fund Next Generation EUhas reinforced the activity of the Compañía Española de Reafianzamiento (CERSA), the public institution that covers the guarantees granted by the SGR, with 644 million during this year.

Public subsidies. The Official Credit Institute (ICO), a state financial agency, makes various lines of credit available to SMEs and the self-employed. Among them, one for entrepreneurs that facilitates access to loans to meet liquidity needs for current expenses (payroll payments and purchase of merchandise, for example), purchase of vehicles or reform of facilities, among others. The request to obtain financing is processed through the banking entities. Massimo Cermelli, Professor of Economics at Deusto Business School, highlights the role of the bank in this process: “He explains to the entrepreneur which lines he can take advantage of, in addition to accompanying him”. The Spanish PRTR has launched multiple aid programs for companies to enhance their digital transformation and their energy efficiency.

Short-term financing channels

Financing also allows companies to efficiently manage their working capital in the short term. That is, the money they need on a day-to-day basis for the proper functioning of the company. This financial element encompasses the assets and rights (such as customer debts with the organization) that the business has and is obtained from the difference between the available capital and the obligations (such as payments to suppliers) that must be met soon. .

It is common, Noya explains, for SMEs to experience a lag in their accounts between the inflow of income and the outflow of money to make payments. This is the case of a company that takes three months to collect the sales of the products it sells, but must pay its debts long before that period is over. “The collections are obtained in longer terms, while the payment to suppliers has to be immediate”, adds this expert. To avoid this gap, which generates liquidity problems, organizations can resort to one of the solutions described below:

Commercial credit. This instrument allows companies to defer payment to suppliers. This form of financing is a type of short-term loan that companies make among themselves and is usually given in the sale of goods and services.

Credit lines. It is a contract by which a bank makes a certain sum of money available to a company for a specific period of time. It is deposited in an account created for it and the employer withdraws only the amounts that he needs. Thus, he pays interest only on the amount that he has used. The money can only be used for business expenses and, once returned, you have it again for the time agreed with the bank.

Facting. This method consists of transferring to a bank the debts that a company has contracted due to the non-payment of its clients. It may happen that the bank takes over the debtor’s insolvency or not, which is known as factoring recourse or non-recourse, respectively.

Withsigning. It is a financial product that allows you to defer the payment of company invoices. In this case, the bank advances the amount that the company owes to its suppliers. This improves the image of the organization in the eyes of its customers and increases trust.

Commercial discounts. In this type of financing, the company transfers to a financial institution the right to collect an unexpired commercial bill (a debt title), such as a check, a promissory note, a bill of exchange or a negotiable receipt. So the bank advances the amount and deducts the corresponding interest. It is a financing tool that allows the company to obtain liquidity immediately and save time and resources for the collection of the invoice due.

Other financing methods

In addition to capital financing, companies have solutions to equip themselves with equipment without having to make large outlays. It is the case of leasing and of leasing. These formulas are especially useful to renew, for example, computer equipment, the installation of photovoltaic panels or the vehicle fleet. Reglero highlights their flexibility, since they allow the company to develop its activity without having to assume high investments.

Leasing. This financing model allows the rental of goods for a certain period and, once the term has expired, they are returned to the leasing company. Reglero defines it as a payment for use and has the advantage that the contract includes all the services associated with the leased property. For example, in the case of financing a vehicle with leasing van the insurance fee includes reviews and technical inspection of vehicles (ITV). This formula also has tax advantages, since it is possible to deduct the value added tax (VAT) and the personal income tax (IRPF) of the good.

Leasing. This type of rental enables the purchase option after the end of the contract. It usually has terms of two to 10 years and is used to finance machinery, industrial vehicles or real estate destined for commercial or industrial activity. In this case, the services and associated expenses are borne by the lessee and do not have the same tax advantages as the renter. leasing. In return, the installments paid for rent are deducted from the final price when the contract ends and the purchase of the property is chosen.

This formula, explains Reglero, is useful, for example, to finance the installation of a biomass boiler (organic matter that produces heat when burned) in a workshop. “Instead of making the investment from the beginning, it is rented and, once the contract is over, it is decided whether to buy it or if it is replaced by a new model with a new rental contract. leasing”, completes this expert.

In any case, before opting for a financing formula, it is advisable to seek professional advice from an expert such as the bank, which will resolve any doubts the entrepreneur may have and help them make the best decision.

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