The funding possibilities have diversified and fragmented substantially after the financial crisis of 2008. In addition to the conventional banking sector, there is a strong growth in funding solutions from the EU and the Finnish government, various seed funds, venture capital funds and, as a new addition, crowd funding platforms.
Stronger regulations have increased the price of funding the conventional banks offer and made it more difficult to get. Receiving funding is problematic especially for growth companies* and for those with no possibilities to get guarantees. this factor doesn’t show up in the funding statistics. Fortunately, there are multiple complementary funding solutions for growth companies seeking to broaden their customer base globally.
There are multiple funding options but the challenge is the constant change. There are three key factors behind the transition of the market:
3. Ambition of the EU and Finnish Government to connive the economic growth and employment
Because of the change in the funding market it’s almost impossible for a company to have the knowledge of all the available options. There’s no denying that Team Finland* has and is doing a good job in bringing all the government supported funding options “under the same roof “ but most of the time there is a need for private funding options from banks and other investors that will supplement the government funding alternatives.
In the past, the funding from the European Union was mainly directed to the development of infrastructure but fortunately the current policymakers want to enhance the economic growth and improve employment within the EU by funding growth companies.
There are banks acting as intermediary in every EU country (in Finland i.e. OP &, in the future, Nordea). The sizes of the loans are below 7,5M€. A SME can get a guarantee for 50 % of their loan capital from the EIB for a price of 0,5 % which is below the market price. EIB is a bank with a 3A credit rating which is clearly visible in the prices of these loans granted by the intermediary banks. The risk of the intermediary bank should be 20 % of the loan. A Finnish company can apply for a guarantee from Finnvera for 30 % of the loan with a price that varies depending on the company’s history.
The best funding option for a fast-growing company is the direct EIB loan which can be quite substantial in size. There can be senior and junior loans as well as capital loans as defined in the Finnish LLC Act (Suomen Osakeyhtiölaki).
Come and hear more about the changes in the funding market at HUB13 Venture Day on Wednesday the 29th of March 2017!
Grannenfelt Finance Oy
*What is a growth company? A growth company is a company with the expected annual revenue growth of over 10%
*Team Finland: http://team.finland.fi/en/frontpage