Select your financing type: a flowchart

Are you going to digitise or automate business processes? Then you often need specific software or hardware. Purchasing these costs money. You may have your own personal savings or have received a grant. If you still need more money after this, a business loan might provide a solution. You increase your chances of your funding application being approved if you pre-select an appropriate financing type. When making a choice, you should consider a number of criteria, including the amount involved, the type of financing, the maturity of the loan, and your business situation.

Organising extra funds for your business is a gradual process. You should start by finding financial scope within your business and then explore whether you are eligible for certain grants and schemes.   This will allow you to reduce your external financing needs. If this does not yield the results you are looking for, start with external funding. Follow the steps as shown in the flowchart. 

This chart is a simplified version of reality and shows you the different financing options available.   Underneath the image, we explain the meanings of the various terms and situations shown in the flowchart. 

Select your financing type: flowchart 

Personal resources 

You can try to free up financial resources within your own business first. You could consider particularly alert inventory management, proactive debtor management, and proactive accounts payable management. Furthermore, you can explore tax schemes and save costs through a practice known as bootstrapping. You can also choose to invest your own funds (including savings) in your business. If you need more money, check out the various grants and schemes available out there.  

Subsidies and schemes  

In addition to your personal funds, there are a number of subsidies and schemes available. Subsidies and schemes are available in different forms, including gifts, tax breaks, credits, loans, or security deposits, competitions, partnership programmes, or benefits. If subsidies and schemes do not cover your financial needs, investigate opportunities for external funding. 

External funding 

Based on your answers to the above questions, please select the appropriate forms of external funding: 

1. How much money do you need? 

1. What do you need money for? 

1. How long do you need this money for? 

1. What is your business set-up? 

1. Do you plan to relinquish control? 

Each of these questions contains an explanation. The answer includes the different forms of funding available. 

1. How much money do you need? 

Financiers tend to cater for a specific audience. Every type of audience has a maximum amount they can borrow. There are financiers that finance relatively small, as well as larger, amounts (including banks). Others focus on relatively small amounts, such as, for example, Qredits, with a microloan of up to €50,000 and loans up to €250,000 for SMEs. 

Amount involved* 

• Up to €50,000 
  Bank, Financial support for self-employed professionals (Bbz, for new businesses), crowdfunding, family or friends, factoring, leasing, supplier credit, microcredit, online credit. 

• From €50,000 to €250,000 
  Bank, Financial support for self-employed professionals (Bbz, for established entrepreneurs), business angels, crowdfunding, factoring, family or friends, credit unions, leasing, supplier credit, credit for SMEs, online credit, Regional Development Corporations (RDCs). 

• From €250,000 to €1 million 
  Banks, business angels, crowdfunding, factoring, leasing, online credit, private debt funds, venture capital funds. 

• From €1 million to €2.5 million 
  Banks, business angels, crowdfunding, factoring, leasing, grants for SMEs, online credit, private-debt funds. 

• From €2.5 million 
  Banks, leasing, grants for SMEs, private-equity firms, private-debt funds. 

• From €5 million 
  Banks, stock exchanges, leasing, grants for SMEs, private-debt funds. 

*These amounts are estimates. Individual financiers may vary from the threshold amounts in practice. 

2. What do you need money for? 

You can spend your money on a variety of purposes. You can use working capital to pay for the difference between income and expenditures. You need business assets such as machines, cars, and inventory to provide your services and supply your products. In some cases, you may also need money to develop a new innovative service or product. The following financiers are appropriate for your various funding needs: 

• Working capital 
  Banks, business angels, crowdfunding, factoring, credit unions, microcredit, grants for SMEs, credit for SMEs, online credit, private-debt funds. 

• Business assets 
  Banks, business angels, leasing, crowdfunding, credit unions, microcredit, grants for SMEs, credit for SMEs, private-debt funds. 

• Innovation and product development 
  Business angels, Regional Development Corporations (RDCs), subsidies, grants, and government schemes; venture capital funds. 

3. For how long will you need the money? 

The maturity or repayment period of your loan depends on the type of financing you need. For working capital, the maturity is less than one year. The term of the financing of business assets is concurrent with the duration of the use of these assets. Funding a business premises is a long-term process. For further information, you can also read the section on control, equity, and loan capital. 

• Short maturity (maximum of one year; working capital) 
  Factoring, flexible credit, supplier credit, online credit, current account, advance on POS terminal fee. 

• Medium maturity (approx. 1 to 5 years, business assets, renovation, venture capital through shares) 
  Banks, business angels, family and friends, credit unions, leasing, grants for SMEs, credit for SMEs, microcredit, online credit, private-debt funds, financiers of equity capital through shares. 

• Longer maturity (longer than 5 years, real estate, venture capital through shares) 
  Banks, mortgage credit (Qredits), mortgage providers, financiers of equity capital through shares. 

4. What is your business set-up? 

Depending on the stage or situation of your business, there may be more or fewer funding opportunities available to you. The fact that, as a new business owner, your track record is blank, does reduce your options. Once your business starts growing, you will find more financiers who are interested. Read more about external funding for your business set-up: 

• funding for starting up 

• funding for growth 

• funding for export or import 

• funding for struggling businesses 

• funding for business takeover 

5. Do you plan to relinquish control? 

External equity capital 

This is how it works when you agree to relinquishing control and external equity capital. 

External equity capital means that shares in your company are transferred to third parties. You can fund this capital by issuing shares. This is possible only if the legal form of your business is a private limited company (besloten vennootschap). If you own a bv, external shareholders will then become co-owners of your business. This is how you sell a portion of your business. This gives your shareholders control; they become co-owners and are entitled to profits. Financiers who are eligible to buy shares in your business include: family and friends, business angels, stock markets, private-equity firms, and Regional Development Corporation (RDCs). If you decide that you want to buy back shares, the question is if and when this will succeed, and at what price. 

Loan capital 

This is how it works when you decide not to relinquish control. 

You want to attract external capital, such as loans or credit. In this case, you will know exactly what you will need to pay and when you will have redeemed the loan. Loan capital consists of the debts of your business to external financiers. Loan capital consists of short-term loan capital and long-term loan capital. 

• Short-term loan capital: debts you repay within one year. Short-term loan capital is needed mainly to fund working capital: stocks, debtors/accounts receivable, and work in progress Examples of short-term loan capital are current-account credit at a bank, factoring, and supplier credit. 

• Long-term loan capital: debts with a maturity of more than one year. Long-term loan capital is needed to buy business assets. You need these to manufacture products or deliver services, including machines, computers, inventory, or real estate.   There are many financiers that provide loan capital, including: family and friends, business angels, banks, Qredits, crowdfunding, private-equity firms, leasing companies, factoring companies, credit unions, stock exchanges, private-debt funds, suppliers, and Regional Development Corporation (RDCs). 

Capital stack or financing mix 

Capital stack or a financing mix involves combining multiple financing types to calculate an aggregate amount. You should also link the correct funding type to the type of investment. Some financiers also combine different types of financing, including working capital and business assets.  

Preparing your application 

To help you while preparing your funding application, you should use a business plan, annual results, and the Business Model Canvas. Getting others to help you increases your chances of obtaining funding. And with the right adviser and a good financial rationale, you will get your finance application approved in no time. These advisers will help you get started. 

Boost your chances

Take a close look at lenders’ criteria before submitting an application. If you find that your score for a particular criterion is sub-par, adjust your operations or explore alternatives in advance.