All types of financing that a business can access

Companies tend to resort to external financing frequently, either to invest in a new line of business, boost one that is already underway, overcome an economic downturn or manage day-to-day liquidity, that is, meet expenses currents. To achieve this, the most common formula is usually a bank loan, both short-term and long-term, according to Jesús Reglero, director of the Master’s in Financial Management at OBS Business School. But there are other solutions and tools that strengthen the ability to manage the daily activity of a company, in short, the payment and collection of invoices and protect against any unforeseen event.

Long-term financing channels

Companies with greater difficulties in accessing bank loans have other ways at their disposal to obtain long-term financing. This is the case of mutual guarantee companies (SGR) and public subsidies.

SGR. Sometimes, companies do not have sufficient guarantees to access the financing they need through the bank. For these cases, the SGR offer this guarantee and, in addition, allow small and medium-sized companies (SMEs) and the self-employed to obtain capital under more favorable conditions than those of the usual loans, such as lower interest rates and longer repayment terms. They are especially useful in approving large loans, according to Eloi Noya, financial adviser and professor of Capital Markets, Fintech and Finance for Entrepreneurship at ESADE.

SGRs do not lend money, but rather provide the guarantees that companies need to obtain it. The Government’s Recovery, Transformation and Resilience Plan (PRTR), which articulates aid from the Next Generation EU European fund, has reinforced the activity of the Compañía Española de Reafianzamiento (CERSA), the public institution that covers the guarantees granted by the SGR, with 644 million during this year.

Public subsidies. The Official Credit Institute (ICO), a state financial agency, makes various lines of credit available to SMEs and the self-employed. Among them, one for entrepreneurs that facilitates access to loans to meet liquidity needs for current expenses (payroll payments and purchase of merchandise, for example), purchase of vehicles or reform of facilities, among others. The request to obtain financing is processed through the banking entities. Massimo Cermelli, Professor of Economics at Deusto Business School, highlights the role of the bank in this process: “It explains to the entrepreneur which lines he can take advantage of, in addition to accompanying him”. The Spanish PRTR has launched multiple aid programs for companies to enhance their digital transformation and energy efficiency.

Short-term financing channels

Financing also allows companies to efficiently manage their working capital in the short term. That is, the money they need on a day-to-day basis for the proper functioning of the company. This financial element encompasses the assets and rights (such as customer debts with the organization) that the business has and is obtained from the difference between the available capital and the obligations (such as payments to suppliers) that must be met soon. .

It is common, Noya explains, for SMEs to experience a lag in their accounts between the inflow of income and the outflow of money to make payments. This is the case of a company that takes three months to collect the sales of the products it sells, but must pay its debts long before that period is over. “The collections are obtained in longer terms, while the payment to suppliers has to be immediate”, adds this expert. To avoid this gap, which generates liquidity problems, organizations can resort to one of the solutions described below:

• Commercial credit. This instrument allows companies to defer payment to suppliers. This form of financing is a type of short-term loan that companies make among themselves and is usually given in the sale of goods and services.
• Credit lines. It is a contract by which a bank makes a certain sum of money available to a company for a specific period of time. It is deposited in an account created for it and the employer withdraws only the amounts that are needed. Thus, you pay interest only for the amount you have used. The money can only be used for business expenses and, once returned, you have it again for the time agreed with the bank.
• This method consists of transferring to a bank the debts that a company has contracted due to the non-payment of its clients. It may happen that the bank takes over the debtor’s insolvency or not, which is known as factoring with recourse or without recourse, respectively.
• It is a financial product that allows you to defer the payment of company invoices. In this case, the bank advances the amount that the company owes to its suppliers. This improves the image of the organization in the eyes of its customers and increases trust.
• Commercial discounts. In this type of financing, the company transfers to a financial institution the right to collect an unexpired commercial instrument (a debt instrument), such as a check, a promissory note, a bill of exchange or a negotiable receipt. So the bank advances the amount and deducts the corresponding interest. It is a financing tool that allows the company to obtain liquidity immediately and save time and resources for the collection of the invoice due.

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