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At the start of a new activity or business and also throughout its development, it is likely that it will be necessary to know what are the best financing channels for SMEs in order to access financing that allows them to meet expenses or new investments that help to expand the company.
Financing from banking entities
The first option that most companies usually opt for is the financing offered by banks. This is due to the trust generated by these entities.
The financing of banking entities is varied and the company will be able to find the product that best suits its liquidity needs.
However, it is essential to bear in mind that all financial products offered by banks carry interest that, in many cases, is quite high. The high cost is the main disadvantage of this type of financing.
Bank loans and credits
There are different products aimed at financing small and medium-sized companies. Among the most common we find:
- Credit. It consists of making an amount available to the company that can be used to pay expenses and supplier invoices.
- Loan. It is a fixed amount granted for a specific purpose, such as the purchase of a vehicle or machinery. They can be personal or consumer loans.
- Mortgage. The mortgage loan is one that is accompanied by a guarantee for its return. It is usually used for the purchase of real estate and is the product that offers the highest amount for the company.
To access most of these products, it will be necessary to prove that the business is viable and profitable and that the requested capital can be returned. It is for this reason that, on many occasions, entrepreneurs and SMEs cannot access bank financing.
In addition to repaying the amount requested with the credits and loans, it is also necessary to pay the required interest, which is often too high and represents a significant cost for SMEs.
The financing offered by banks can be very useful for companies that have capital but need liquidity at specific times.
Alternative financing for SMEs
There are alternative ways to bank financing, which have arisen due to the difficulties of SMEs in obtaining traditional financing. With these new options it will not be necessary to meet the requirements demanded by the banks or pay such high interest.
Crowdfunding
Crowdfunding is a type of financing outside of banks and with which liquidity is achieved through donations from different users. These people or companies can collaborate altruistically or receive some kind of payment or reward in exchange for the amount contributed.
To obtain this financing, you can access different websites and platforms where the projects are published and users can make contributions.
Crowdlending
Crowdlending has in common with crowdfunding that it can be accessed through websites and platforms, eliminating intermediaries and the costs they entail.
This financing is usually complementary to others and consists of thecontribution of a group of investors to a project or company.Investors receive back the amount borrowed in addition to the agreed interest rate.
Business Angels
This option is somewhat different from the previous two since it consists of the participation through capital and collaboration in the project of natural persons who have knowledge and experience in the sector to promote a company that is starting its activity.
Business Grants
One of the best financing options for SMEs in Spain are grants. Although for this it is necessary to meet some requirements, local, regional and state subsidies are usually available.
Some of the SME grants currently available are:
- Capitalization of unemployment. In this way, the entire amount corresponding to the unemployment benefit is collected at a single moment.
- Aid for self-employment. In almost all the Autonomous Communities there are usually subsidies for self-employment.
- Financing subsidized and without endorsement. Through the Official Credit Institute (ICO), ENISA and similar entities.
- Digital Kit. It is a good option to digitize businesses including different digital solutions: website, internet presence and social networks, among others.
- Bonus training credit. The amount will be allocated to employee training and will depend on the volume of contracts from the previous year, being €420 for SMEs and €65 per contracted worker for newly created companies.
Among the best financing channels for SMEs are, first of all, the products offered by banking entities: credits, loans and mortgages. But there are also forms of alternative financing, such as crowdfunding, crowdlending and business angels. Another very interesting option is to access one of the available subsidies.
Further information
This article is part of our service Business consulting. Visit this section where you will find all the useful information on this topic, including a complete guide on How to start a business in Spain as a foreigner.
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