Which Corporate Financing Suits You?
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| Which Corporate Financing Suits You? |
Which Corporate Financing Suits You? - Whether a multi-billion dollar international corporation, medium-sized company or start-up - with solid financing for your company, you ensure that you always have sufficient financial resources to achieve your corporate goals and successfully develop your company.
But which financing options are actually available and which form of corporate financing is best suited for financing your company?
Corporate Finance Basics
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| Corporate Finance Basics |
There are basically two sources of corporate finance: equity and debt. In your corporate financing, you determine the proportion of the respective sources. The ratio essentially depends on your business model and the phase your company is in.
The Agony Of Choice
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| The Agony Of Choice |
Unfortunately, it doesn't exist - the one, the right corporate financing. The choice of financing options is correspondingly large. Carefully weigh the pros and cons according to your requirements and needs before creating a financial plan for corporate financing.
What Types Of Corporate Finance are There?
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| What Types Of Corporate Finance are There? |
To find out which financing option is suitable for you, first clarify:
- Which phase your company is in
- How much money you can or want to invest in your company yourself
- Whether you are ready to bring a partner, co-owner or investor on board
- Whether you prefer to remain independent and raise outside capital
- What the optimal ratio of debt and equity looks like in relation to the business model and company phase
Once you have decided whether you want equity or debt capital or a mixed form, you have various options for financing your company.
Bootstrapping
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| Bootstrapping |
Those who can afford it finance their start-up with what is known as bootstrapping out of their own pocket. This allows you to stay independent and to use your creative freedom to achieve success as quickly as possible.
Friends and Family
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| Friends and Family |
The search for investors among friends and family is not entirely undisputed. It is true that less collateral and usually no interest are required here. However, the trouble is inevitable if you fail with your start-up.
State Funding Programs
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| State Funding Programs |
In the start-up portal of the Federal Ministry for Economic Affairs and Energy (BMWi), founders benefit from state funding programs. The state helps young companies in the start-up phase with promotional loans.
These are characterized by favorable interest rates, long terms and often a start-up phase with no repayment. Or you can turn to fund companies or development banks, which support start-ups financially in their start-up phase.
Bank Loans
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| Bank Loans |
Bank loans have their advantages. But unfortunately also their disadvantages: banks expect collateral and are bound by strict rules when granting loans. Without a solid and convincing business model, the chances that the bank will approve your loan application are slim.
And paying off the loan regularly is an enormous burden, especially in the initial phase. But once you have convinced the bank, the investors will come almost automatically.
Crowdfunding and Crowd Investing
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| Crowdfunding and Crowd Investing |
In search of capital, young entrepreneurs are increasingly going online and using digital channels such as crowdfunding or crowd investing for their corporate financing.
With crowdinvesting you get support to build up your company financially. The prerequisite is that you have already founded your company and already have a product that is ready for the market. In addition, investors expect a return on their financial commitment here.
Business Angels
Anyone who has ever founded a company will certainly still vividly remember the time before the company made money. He knows the challenges that start-ups face and is happy to share his success with young entrepreneurs: As business angels, you invest your own money in the start-up scene.
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| Which Corporate Financing Suits You? |
Incubators, Accelerators, Venture Capital
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| Incubators, Accelerators, Venture Capital |
In addition to financial support, founders of incubators and accelerators or venture capital companies not only receive financial support. You also benefit from their know-how and use their infrastructure and networks.
The disadvantage: For this funding, founders often have to give up many shares at conditions that are unfavorable for them, which can have negative effects if they are successful.
Corporate Financing in The Change Of Corporate Phases
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| Corporate Financing in The Change Of Corporate Phases |
The aim of solid corporate financing is to determine the necessary capital requirements in the respective corporate phases. One-off start-up costs and investments are incurred in the start-up phase.
But the costs for ongoing operations and the private costs of the founders must also be taken into account here. In the beginning you will of course spend more money than you earn. As soon as you generate monthly surpluses, you adjust your financing plan and the ratio of equity and debt accordingly.
Equity Versus Debt
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| Equity Versus Debt |
The equity ratio represents the relationship between internal and external financing. As with the type of corporate financing, there is neither right nor wrong here. Conservative corporate finance puts a 60 percent limit on debt. This is how you avoid high debts and high repayments in times of crisis.
- With a higher use of equity, your company makes a solid impression. This makes it easier for you to take out outside capital on favorable terms.
- If the proportion of your equity is too high, it in turn has a deterrent effect on lenders.
- If the equity is too low, it is advisable to increase this proportion. For example with a bank loan. However, this step only makes sense in periods of low interest rates and when the return on equity is higher than the interest incurred.
Actually inconceivable: If you as an entrepreneur have sufficient liquid funds during the start-up phase, it often makes sense to finance this capital in the company. Otherwise you run the risk of paying negative interest to the bank.
Which Corporate Financing Suits You?
The financing options for start-ups and small or medium-sized companies are as individual and numerous as the ideas, projects and products behind the start-ups. Unfortunately there is no master plan here.
Your corporate finance strategy must optimally fit your business model, your financial situation and the phase your company is in. Carefully review all options here. And that's not all: Your company changes over time. Likewise your financial situation.
So adjust your corporate financing again and again so that you have sufficient funds available to drive your success forward. It is extremely important that you always have a good overview of your finances.
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