Digital technology, an essential tool to facilitate SME financing
In times of crisis, the problem of financing is particularly acute for SME managers. How can they continue to finance their projects? What are the financial requirements? How to finance a change in business model?
Digitization appears to be an essential tool to answer these questions efficiently. FirmFunding and Pono explain how.
Finding suitable financing with solid repayment guarantees, an asset for SMEs
Whatever the situation of the SME seeking financing and the project to be financed, the first questions to be addressed are (i) the solidity of the SME's balance sheet structure and (ii) the guarantees offered to the creditor for the successful completion of the envisaged financing.
(i) The first necessity for SMEs is to seek to strengthen their equity or quasi-equity by doing so-called « top-end » financing: incorporation of reserves or capital increase, or, if they do not want to or cannot touch their capital, private debt financing. Private debt has the great advantage of being non-dilutive and of being reimbursed in fine, thus preserving the company's cash flow. In addition to these « classic » instruments of equity financing, the recent period of the Covid crisis has seen the emergence of new tools for strengthening equity, in the form of bank loans or bonds (« PPSE » and « stimulus « bonds »).
(ii) Credit guarantees also make it possible to create a framework of trust between the borrower and the lender in order to facilitate access to financing. To the well-known “traditional” guarantees (mortgage, pledge, collateral) but sometimes too little protection for creditors (particularly in the case of collective proceedings) is added an extraordinarily flexible and effective legal tool: the security trust.
Named "the Queen of security interests" since its registration in the Civil Code in 2007, the trust is based on an assignment of an asset or right as collateral to secure financing for a beneficiary creditor. The effectiveness of the trust is reflected in the exclusivity it offers the creditor over the assets pledged as security, in the event of default. In addition, in the event of enforcement of the security by sale of the assets, the trust provides greater protection of value for the borrower, as the sale is conducted by private contract, without the loss of value that a judicial sale usually entails.
Pono and FirmFunding: digitalization as a simplification and acceleration tool for financing players
FirmFunding is a private placement financing platform for professionals. Founded in 2016, it aims to offer SMEs an alternative financing solution to bank loans. Indeed, the reflex of growing SMEs was to turn mostly to bank credit to finance their financing needs. Private debt financing, which is still not widely used, has advantages over bank financing, as it allows the financing of all types of projects, while preserving the founder's share of capital. FirmFunding's ambition is to bring private debt financing within reach of SMEs by connecting advisory and financing professionals, in a digitized and simplified process. The FirmFunding marketplace thus enables the top boards of SMEs with projects seeking financing to be put in touch with investors ready to finance them. At the time of its creation, in 2016, digital technology already appeared to be the right solution to offer SMEs access to the private debt market. The health crisis we are going through, one of the first effects of which is to prevent human contact in the professional world, has confirmed the interest of using digital to work. Digital is no longer an option, it has become a necessity. The Covid crisis has highlighted the usefulness of the FirmFunding solution and it is likely that there will be no turning back, even after the crisis.
Pono has created the first digital solution for collateral management of credit (including trust security). Through its technology, it facilitates the creation of collateral contracts and simplifies their management by financing players (banks, debt funds, crowdlenders, family offices). Pono's ambition is threefold: i) to reduce the set-up times and costs of using these tools, in particular for trust, ii) to democratize the use of credit guarantees and iii) to allow financing players to simply adapt to the new standards in the financing business: remote work, shorter timeframes, competitive costs for the borrower and 100% digital procedure (from the creation of the guarantee contract to its electronic signature).
Pono aims to become the trusted third-party credit technology to promote non-dilutive financing for French SMEs. To this end, Pono's solution has been used on several transactions in the FirmFunding marketplace: farm takeover financing, real estate financing, etc.
The only funding platform dedicated to private placement and growth financing for SMEs, FirmFunding has more than 250 registered professional investors with a total investment capacity of over €3 billion. It has become an essential tool for SMEs to find the right high-end financing for their needs, among all those available, including from the stimulus package (stimulus bonds).
Founded in September 2019, Pono provides its SaaS credit collateral management solution to credit institutions, management companies, lawyers and private investors who manage over €100M of collateral assets through its platform.
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