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Jana Pfeiffer December 22, 2020 3 Minutes
Categories: Finance - Categories | Financing Guide

If you want to improve the liquidity of your company, it is advisable to have recourse to corporate financing. Because: In this way, existing liquid funds are conserved and a financing gap is avoided. The funds gained can then be invested in emerging projects, such as the Procurement of goods .There are various financing options available to companies for this purpose:

Equity vs. debt financing

Whereas financing by means of equity capital presupposes a shareholding relationship, in the case of debt financing the company and the lender are in a debt relationship with each other. In the case of equity financing, the investor invests the funds in the company for an unlimited period of time. In return, the investor receives a share of the profits. In contrast, providers of debt capital usually only lend the capital to the company for a limited period of time. The capital must be repaid to the lender after a previously agreed period of time, usually including interest.

Types of equity financing for corporate financing

Private deposits

Private deposits are a type of equity financing. In the context of private contributions, the required capital is provided from the funds of one's own entrepreneurial activities.

business angels

In addition, recourse to business angels can be a suitable option for equity financing. Business angels often invest their money (in the form of capital) in small companies during their start-up or growth phase. They often act in an advisory capacity and support the young company with important business contacts as well as know-how.

FFF - Fools, Family, Friends, also called "Love Money".

Exploiting FFF is often an easy way of financing, as family and friends already know the company and have confidence in the business idea and the founder. However, the close relationship between founder and investor also carries the risk of disputes.

venture capital companies

Venture capital companies are another option for equity financing. These invest in young, fast-growing companies with great potential. They act as venture capitalists, which is why their investments are usually subject to strict conditions.

Conclusion: equity financing

The advantage of self-financing is that the investment does not have to be repaid. Instead, the investor receives shares in the company whose value, if the company is successful, can be many times higher than the original investment. In most cases, investors also support the company with know-how or important contacts, as investors have a legitimate interest in the success of the company. At the same time, however, investors can also reduce the company's decision-making power. Those who can demonstrate a higher level of equity capital can also usually negotiate better credit conditions for subsequent external financing:

Types of debt financing for business financing

Traditional bank financing

A loan from the private house bank, is often one of the most obvious thoughts when it comes to business financing. However, banks often require strict and inflexible collateral as a condition for a loan. In addition, repayment rates are often inflexible and often include hidden costs. Learn more about the Advantages of fulfin over banks.

alternative lending

Alternative Lending defines itself as a collective term for different possibilities of business financing, apart from the traditional bank loan.

One type of alternative lending is the Finetrading . The finetrading provider settles the invoice with the merchant. The extended retention of title serves as security. The company, in turn, usually receives an extended payment term from the finetrader or the granting of repayment by means of instalments.

Another option for corporate financing is the Factoring . Within the framework of factoring, a short-term receivable (e.g. invoice) is sold to a factoring company. The risk of the receivable is thus transferred to the factoring company, which reduces the Credit rating of the company improved.

Fulfillment Finance™
Fulfillment finance is a type of Inventory Financing:The credit software can even be integrated into the respective e-commerce platform. This automatically generates the data required for the application and overcomes tedious bureaucratic hurdles. Moreover, the repayment schedule is aligned with the e-commerce sales cycle and the purchase of goods itself can serve as collateral for the financing.

Conclusion: Alternative Lending
The process for the Credit application usually works quickly and straightforwardly. With fulfillment financing, the credit software can even be integrated directly into the e-commerce platforms. In this way, liquidity can also be made available at short notice. Flexible options can also often be used to grant security. In this way, loans can be granted that would otherwise fail due to the high security requirements.

Improve creditworthiness for better credit conditions in corporate financing 

Regardless of which of the methods of corporate financing described above a company chooses, it is recommended that the Improve creditworthiness and thus potentially improve the conditions for a loan. For this purpose, a self-disclosure should be obtained and checked as a first step - even before the credit application. In addition, it is advisable to avoid payment arrears and to build up a positive payment history as a reference. You should be able to prove that your income exceeds your expenses. The equity and debt ratio should also not be too high. 

Conclusion on corporate financing

Companies therefore have various options available to them for corporate financing in order to improve liquidity. For those who need capital in the short term, it is advisable to have recourse to alternative lending. In fulfillment financing, for example, the credit software can even be integrated directly into the e-commerce platforms and the data required for the application can be generated automatically, which greatly simplifies the application process.

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