Investing is about improving the production capacity of a company

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The different sources of investment finance

A company that does not have the necessary cash flow can finance its investments through various types of financing. Here are some of them...

1. Investing is not just about buying new machinery

A company can improve its production capacity through tangible investments (land, buildings, manufacturing equipment, etc.) but also through intangible means (research, training, etc.).

2. To finance its investments, an enterprise can use self-financing or bank loans

It can also make public calls for savings and, in certain cases, public aid.

3. Self-financing is not an appeal to shareholders

Self-financing means that a company finances its investments without calling on external capital.

It can be constituted by the depreciation of the financial year, the profit of the same financial year or those of previous years: the reserves.

4. Going public means essentially issuing new shares or bonds

Joint-stock companies can call on the Financial Market, i.e. issue shares, bonds, but also derivative or mixed securities.

A company can therefore increase its capital by asking for new contributions from its current shareholders or from new shareholders.

It can also issue a bond or equity security by asking the public to lend it capital over a long period.

Finally, it can use other techniques such as venture capital, employee shareholding or finally make itself better known through an IPO.

5. Venture capital is not defined as the risks faced by shareholders

Venture capital companies aim to provide equity to unlisted small and medium-sized enterprises.

Several forms of venture capital can be distinguished

• creation venture capital with intervention in a company that has been in existence for less than 3 years.
• Development venture capital in companies that have already proved their worth.
• Transmission venture capital in the case of intervention for the transmission of the company, particularly to employees.
  
  

6. The IPO does not provide immediate funds to a company

An IPO is an operation whereby a certain percentage of the capital is sold to the public on the market: minimum 10% of the capital.

An IPO allows the issuer to acquire a certain notoriety.

It does not provide the company concerned with an immediate injection of fresh capital, but it takes place with a view to a very close call on the market.

7. Banks can finance investments through conventional credit

Banks can intervene either in the form of a conventional medium or long-term loan, or in the form of a leasing agreement, or in the form of an equity loan.

8. Leasing cannot finance just any investment

Leasing is a technique for financing a fixed asset whereby a bank or financial company acquires a movable or immovable asset to lease it to a company, the latter having the possibility of buying back the leased asset for a generally low residual value at the end of the contract.

This type of financing is reserved for standard goods.

9. Leasing does not only have advantages

Leasing has its advantages but also its disadvantages.

. Advantages

Leasing is very flexible.

It does not require any self-financing.

The user, being the lessee of the financed asset, does not have to provide any real guarantee.

There are no fixed assets on the balance sheet as it is a rental.

The rents are recorded as overheads provided that the rental period corresponds to the economic life of the leased asset.

. Disadvantages

It is a high cost financing technique especially for small investments.

This type of financing is reserved for standard goods.

The financed goods cannot be given as collateral.

The lessee, when buying back the property, even for a low residual value, must depreciate it at the end of the contract.

10. Public authorities can sometimes help companies that invest

In certain cases and under certain conditions, companies can obtain aid from the State or local authorities to finance their equipment.

Public intervention and support is most often reserved for companies that are of definite interest to the economy or, on the contrary, for those that are experiencing serious difficulties.

In some cases, this support may take the form of subsidised loans, with the local authority paying part of the interest.

Direct investment aid is tending to disappear and to be replaced by incentives for job creation.