Businesses need capital to grow, regardless of where they are in their development. There are two kinds of financing: internal and external. In this article, we examine the types available for organizations in France and explain how to choose the one that’s right for you.

What’s in this article?

• Internal financing
  
• External financing
  
• How to choose the right financing option for your project
  
• How Stripe Capital can help
  

Internal financing

Businesses can fund their projects using their own resources. Company equity is different from shareholder loans.

A company’s own resources or funds

Company funds are contributed by shareholders to start the venture or increase its share capital. These contributions grant shareholders the right to vote and receive dividends. They are most commonly used to finance the startup of a business. Profits not distributed as dividends are also retained as part of a company’s funds.

Shareholder loans

Shareholders sometimes advance funds to a business temporarily. This type of contribution does not give the shareholder equity. Instead, it is considered a liability on the current account balance sheet. Repayment follows agreed terms, which could include interest.

External financing

Companies can also seek financing from third parties. External providers of capital include financial institutions, public programs, friends and family, specialized organizations, crowdfunding, and investors.

Bank loans

Most companies take out loans from a bank. To gain approval, shareholders or firms must submit a robust application complete with a comprehensive business plan.

Bank funding typically covers up to 70% of the purchase price. That is, buyers contribute at least 30% of financing themselves. Commercial loans require repayment over 5 to 7 years.

Government aid

The French government has programs to help create, acquire, and expand businesses. Government aid can take the form of subsidies, low-interest loans, tax and payroll exemptions, and tax credits.

L’aide à la création ou à la reprise d’une entreprise (ACRE) is a public program that temporarily exempts founders from payroll taxes when a venture starts out. France 2030 is a subsidy program that facilitates businesses with environmental and energy transition.

Friends and family (“love money”)

Funds from friends and family, often referred to as “love money,” are typically given as donations or loans. All contributions over €1,500 require written documentation, with a loan agreement or formal IOU.

Interest-free loans

Interest-free loans are medium-term advances granted to an individual (not the legal entity) by a nonbanking institution or organization. The loan is intended to finance the startup’s creation. Amounts typically range from €1,000 to €90,000 and are repaid over 1 to 7 years, usually with 0% interest.

Nonprofit organizations, civil real estate companies (SCI), and enterprises and foundations experiencing financial difficulties do not qualify for these kinds of loans. Certain industries are also ineligible, including extraction industries, agriculture, fishing, aquaculture, property rental, and financial intermediation.

Venture capital

Venture capital is a financing option for nonlisted companies with strong growth potential. Venture capitalists (VCs) raise money from institutions, enterprises, and investors and can reach into the millions of euros.

Accepting this type of funding involves granting a stake in your company to the VCs, who are hoping to make a profit for their investors when they eventually exit.

Angel investors

Angel investors are industry experts who bring their money, experience, and network of innovative companies to the table. Many are former CEOs or executives interested in helping to start and develop businesses with strong growth potential.

In exchange for financing, angel investors become shareholders and own a portion of the company, allowing them to share in earnings and decision-making. Like VCs, their goal is to realize a gain on exit.

Note: Venture capital or angel investor financing can pave the way for additional fundraising.

Crowdfunding

Crowdfunding is a way for entrepreneurs to raise capital online directly from individuals through special websites such as Kickstarter. This is an alternative to traditional financing and is increasingly popular.

How to choose the right financing option for your project

Before seeking funds, assess the financial situation, strategy, and needs. Where are you in the company’s lifecycle? How much money do you have right now? What are your sales, production, management, communications, and marketing expenses? Is additional inventory required?

Research the financing options available based on those needs. Ask friends and family, colleagues, and outside investors for help or financial assistance. If you plan to apply for financing from a bank, organization, or investor, prepare a strong, comprehensive application with a viable business plan. It’s important to stand out from the competition.

How Stripe Capital can help

Stripe Capital offers revenue-based financing solutions. Our goal is to help you obtain the financing you need to grow your company.

Capital can help you:

• Access development capital more quickly: Get a loan or cash advance in minutes, without the lengthy application process or collateral requirements of a traditional bank loan.
  
• Match financing to your revenue: With Capital, payments are adjusted automatically based on company performance. You pay a fixed percentage of daily sales. If your sales fall below the minimum payment, Capital debits the rest from your account hassle free.
  
• Grow with confidence: Whether you need a marketing campaign, new hires, or an inventory bump, you can finance it without diluting your equity or impacting your personal assets.
  
• Draw on Stripe’s expertise: Capital offers custom financing solutions drawing on Stripe’s extensive expertise and payment data.
  

Discover how Stripe Capital can help you start or grow your company today.