Finding enough resources to finance the launch of your project can be particularly distressing when you don't have sufficient personal savings.
Banking institutions do offer financing, but most of the time they require a personal contribution. What can you do if you don't have one? Is it possible to finance your business without a down payment? What are the risks involved?
This article tells you all about it.
Contributions are one of the main ways of financing a company. It constitutes the company's share capital, and therefore contributes to its financial stability. The contribution is made by the partners when the company is incorporated. To do this, associates can choose between two types of contribution:
- The cash contribution is a sum of money to be deposited in an account opened in the name of the company being set up. The monetary sum is blocked until the K-Bis extract is obtained.
- In-kind contributions are non-monetary assets. Partners can contribute a building, a business, a vehicle, etc. Each in-kind contribution must be valued by a contribution auditor. Unless an asset does not exceed €30,000 and their total value does not exceed half the share capital.
Partners receive shares in return for their contributions. While the latter strengthen a company's capital, it is possible to do without them, depending on the company's legal status.
During the process of setting up your business, you need to consider the question of which legal status to choose. Different forms are possible. If you don't intend to make a capital contribution, you should be aware of the legal structures that do not impose any obligation regarding the amount of share capital. The forms likely to be of interest to you are :
The micro-entrepreneur scheme can be particularly advantageous for your start-up project. Set-up costs are effectively reduced, and you won't have to pay any social security contributions if you don't generate any sales.
Good to know: there are also legal forms that allow you to set up a business with no minimum capital requirement. These include SARL, SAS, SASU, SCI and EURL.
Starting a business with no capital outlay is feasible, but there's still the question of financing. Without financial resources, it's more than complicated to pay for administrative procedures. Not to mention purchasing materials, manufacturing, promoting and launching products... Applying for a loan from a financial institution could fill this financial gap.
However, banks are reluctant to grant start-up loans if the entrepreneur has not made a capital contribution beforehand. This would mean that the bank would bear all the risk.
As a reminder, an entrepreneur who contributes 20% to 50% of the total project cost is more likely to be granted a loan.
On the other hand, a lack of capital can hinder your company's development (i.e. miss out on business opportunities). And don't forget that a company with substantial capital demonstrates the entrepreneur's determination to see his project through to completion. This reassures investors and gives you credibility in their eyes.
Just because you haven't made a down payment doesn't mean you have to say goodbye to your entrepreneurial dream. You can still turn to other means of financing.
Whether you've made a down payment or not, there are several alternatives to a bank loan.
1. Apply for an honorary loan
It's a scheme reserved for entrepreneurs who can't reassure banks because they don't have a personal contribution to make. Unlike business loans, honor loans are generally interest-free. It should also be noted that the personal guarantee offered is none other than the applicant's honor. So, to benefit from an honor loan, you need to go through an in-depth examination of your project. Make sure your business plan is as realistic as possible.
Note also that the repayment term is fixed for a specific period and is determined by the plausibility of your business plan. Organizations offering this loan include Initiative France, ADIE and France Active. Loan amounts range from €2,000 to €50,000.
2. Love money: get help from friends and family
Trusting someone you know well is easier than trusting a stranger. This is the basis of the love money concept. Love money involves raising funds from friends and family. Funds can be allocated in a variety of ways:
- Donation: this eliminates the need to comply with certain formalities.
- Equity investment: friends and family who have contributed funds become shareholders and are entitled to a share of future profits.
- Loan: a contract in the names of both parties may or may not be drawn up.
3. Support for business start-ups
To finance your business without a down payment, you can also count on the many business start-up grants available. These include :
- ACRE. In addition to support during the first few years of business, you benefit from a partial exemption from social security contributions. However, this exemption is subject to conditions, such as the creation of a sole proprietorship. The exemption is only valid if profits are less than €40,524.
- ARCE, or aid for taking over or starting up a business. Provided by Pôle Emploi, this aid enables a jobseeker to receive unemployment benefit in the form of a lump sum. To obtain ARCE, jobseekers taking over or creating a business must first receive ACRE. Please note that benefits are only received when the business is launched. The amount of ARCE is equal to 45% of the amount of ARE (Aide au Retour à l'Emploi) entitlement.
- NACRE, or nouvel accompagnement pour la création ou la reprise d'entreprise. Set up by the French government, this assistance is aimed at business start-ups and takeovers between the ages of 18 and 25. ARE, RSA and ASS recipients are also eligible.
4. Using crowdfunding to attract third parties
The aim of crowdfunding is to bring entrepreneurs and investors together via a dedicated platform. Give yourself the best chance of success by choosing platforms that are consistent with your objectives, have a high profile and a good success rate. Third parties (professionals and individuals) interested in your project make a contribution in the form of a donation, loan or equity investment.
5. Microcredit, easier to obtain than a bank loan
To overcome your difficulties in obtaining a bank loan, you can turn to microcredit. To qualify for a loan, your project will have to be the subject of a special study. As a general rule, the amount granted does not exceed €10,000.
Written by our expert La Rédaction
April 15, 2020
