How does the FirmFunding platform provide SMEs with access to equity and equity-like financing solutions?
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? In all cases, the question of the solidity of the SME's balance sheet structure arises, and in particular that of equity financing.
Equity and equity-like financing: a necessity for SMEs wishing to ensure their growth
The expression « balance sheet » refers to the presentation of the company's balance sheet, which shows, « at the top », stable assets and resources such as equity, debts and medium- and long-term financing, and, « at the bottom », items considered less stable, such as cash.
More precisely, on the assets side, the top of the balance sheet is made up of fixed assets, intended to remain in the SME's possession on a long-term basis (land, equipment, plant), while on the liabilities side, it is made up of shareholders' equity and long-term debt.
Seeking to strengthen the top end of the balance sheet, or « making the top end of the balance sheet », is traditionally considered the key to a growth strategy: ensuring the strength of one's equity makes it possible to get through periods of economic uncertainty with more peace of mind. Studies show that high-growth companies have benefited from capital increases before and during their growth period. The strengthening of equity capital has allowed these companies to invest more, while maintaining their access to bank financing.
Several strategies can justify strengthening its equity, whether it is :
- offensive: The SME wishes to finance investment projects, purchases of machines or buildings, to concretize a logic of external growth, to conquer new markets, to innovate… The increase in WCR engendered is not perceived as a problem if equity is sufficiently high.
- or defensive: The reinforcement of equity capital may become a necessity when the SME, going through a difficult period, wishes to change its economic model.
Several solutions are available to SMEs to obtain equity financing
The first equity financing solution available to SMEs is to seek to strengthen their equity: This can be done by putting some of their profits into reserves, which implies, however, having a sufficient level of profits or by increasing their share capital. However, such solutions are not always possible or desirable (not enough profit, the shareholders cannot replenish the capital or the founder does not want to dilute his share of the capital).
The second possible solution is to strengthen quasi-equity, which, although not always considered as equity for accounting purposes, are classified at the top of the balance sheet above financial debt. They consist of partners' current accounts or sources of financing in the form of private debt, the repayment of which is in the hands of the borrowing SME or which are convertible into equity securities (subordinated debt, equity loans, mezzanine debt). The private debt has the great advantage of being non-dilutive and of being repaid in fine, i.e. at maturity, which helps preserve the company's cash flows. In addition to these « classic » instruments of senior balance sheet financing, the recent Covid crisis period has seen the emergence of new tools for strengthening equity, in the form of bank loans or bonds.
Equity loans and relance bonds, new tools available to SMEs to strengthen their equity capital
In early March 2021, the French government announced the deployment of two schemes to promote recovery by strengthening the equity capital of French SMEs, likely starting in April and May: State-supported equity loans ("SSEPs"), distributed by banks, are for 8 years. They can be combined with PGEs, but in this case will be capped. The interest rate will be between 4.5 and 5.5% depending on the size of the SME and the pricing will be specific to each bank. The loans will be amortizable after 4 years: during the first four years, only the interest will be reimbursed, the reimbursement of the capital will be added from the fifth year.
« Relance bonds », which are bonds convertible into shares (OBSA), will be distributed by private equity players. They benefit from the same state guarantee as the PPSE, with a rate varying from 5 to 6% depending on the size of the company. A notable difference with the equity loan is that repayment will be entirely "in fine": only the interest will be repaid during the 8-year term, the amount of the bond loan being repaid in full at maturity.
FirmFunding, a unique marketplace that provides SMEs with instant access to all equity financing instruments
Capital increase, senior debt, mezzanine, and recently stimulus bonds... not all solutions are adapted to all SMEs, depending on their activity, their maturity, their financial situation; and not all professionals of this type of financing offer them all. How can you access a suitable financing method and benefit from its advantages when you do not know all the professional investors?
FirmFunding, the first and only funding platform dedicated to private placement, allows SMEs to pitch their funding project online and instantly present it to registered professional investors (+200).
In order to meet the requirements of private debt professionals and enable SMEs to find the most suitable solution for their situation, the FirmFunding teams provide their expertise in order to determine :
- what financing solutions are available (in particular, the PPSE and stimulus bond schemes are not open to all SMEs)
- what is the most suitable financing solution for the SME, depending on its repayment capacity, the founder's willingness - or not - to be diluted, the purpose of the financing project…
FirmFunding's teams assist SMEs and advise them on the points to develop and highlight (existence of guarantees promoting the security of the project, details on certain sectoral specificities, highlighting of strong points, explanations of what could appear as weak points...), so as to arouse the interest of investors registered on the marketplace. Only these investors have access to the financing projects, which makes it possible to maintain the confidentiality often desired by SMEs.
Whatever the financing issue at hand, and in the event that the SME's manager would like to strengthen his or her equity with equity financing, the FirmFunding platform can be a fast, secure and 100% digitalized way to access all the right solutions. To learn more get in touch with our teams.
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