How does financing work?
Financing is usually a loan. You are given an amount of money and must pay it back, including interest, within an agreed timeframe. Sometimes the amount you get is a gift, usually under conditions. Always read the conditions carefully. You can also mix different forms of financing. This is also called stacked financing or the financing mix.
Take your own situation as a starting point
If you need money, it is wise to look at your situation and plans first. Then you will have the best chance of actually getting the financing. For example, you might be looking for money because:
- you want to start a business (in Dutch)
- your company is growing (in Dutch)
- you have international ambitions (in Dutch)
- you want to take over another company
- you want to innovate
- your business is not doing well
Tips for financing applications
Pay attention to this when applying for financing:
- read the loan proposal carefully and also read the small print completely.
- check the height of the interest rate and read the terms and conditions of the financing. Convert the interest rate to an annual interest rate and determine if that rate suits your financial situation. After their investigation, the Financial Markets Authority (AFM) warns against high interest rates. Stichting MKB Financiering has a seal of approval for member financiers and financing advisers.
- make sure your records are updated and current. This way, a financier can quickly assess your application.
- Compare offers from at least 3 financiers. This will allow you to compare and choose properly. A clear contract, a quality mark, and membership of a sector organisation will help you make your choice. With a seal of approval and membership in a sector organisation, financiers must follow the rules of a code of conduct. The code of conduct requires financiers to be clear during the financing process.
More success with your financing request
Use the financing flowchart to select a suitable type of financing. And review the terms and requirements of financiers before you apply. If necessary, adjust your business operations in advance and explore alternatives for loans, credit, or business operations.
Get help with financing
Advice and help from specialists increase your chances of obtaining financing. With the right adviser and a good financial basis, you stand a better chance with your financing application. These advisers will help you get started.
Borrowing money from a bank
One of the best-known options is taking out a business loan from a bank. For example, business owners can make use of the €1,000 to €5,000 overdraft facility (rekening-courantkrediet, in Dutch) of their business bank account. If you want a bigger loan for your business, you need to show that you can repay the borrowed amount. The types of bank loans are:
With a business bank loan, you borrow an amount of money from the bank. You then repay this loan over an agreed period. You also pay interest. As a result, you pay back more than you borrowed.
With a bank guarantee, your business partners and suppliers are confident that you can meet your financial obligations. The bank acts as a guarantor. If you cannot meet your financial obligation, the bank pays the amount owed to the creditor.
Business mortgage loan
A business mortgage is a business loan for buying or rebuilding business property. The term of a business mortgage is usually between 10 and 25 years. You repay the mortgage with interest each month.
Right of pledge
With the right of pledge (pandrecht), you give your bank more security to recover the loan. You do this by pledging assets, such as your inventory, stocks, or receivables. If you cannot repay the loan, your bank has the right to sell these assets.
Credit insurance gives you more security that you will not lose your money if you deliver on account. For example, if your customer does not pay due to bankruptcy or suspension of payments. Then your bank or insurance company will pay out the money to you.
With leasing, a bank or leasing company finances business assets, such as a car or machines. With financial leasing, you take out a kind of business loan. You then pay back the financing amount in instalments. The product is yours and you run the economic risk. With an operating lease, the leasing company remains the owner. You can compare it to renting.
Other forms of business financing
There are ways to get financing for your business other than the bank. Other options for business financing include:
Borrowing money from family and friends
Borrowing money from family and friends can be a solution. But always make good arrangements about the amount borrowed and draw up a contract. This will prevent arguments over money.
Business Angels are private investors or entrepreneurs who finance interesting new businesses. This type of investment is often an investment in shares. Sometimes it is a business loan. The amount is usually between €50,000 and €750,000.
Seed Business Angels fund
A seed fund is a special fund by Business Angels. It focuses on business financing for innovative startups. You apply for financing from the fund itself. You can do so from about €200,000 and almost always at a percentage of shares. The average Seed Business Angels fund investment is between €1-3 million.
An SME loan is a business loan of at least €50,000 up to €250,000 maximum for startups and existing entrepreneurs in small and medium-sized enterprises.
Crowdfunding for businesses
Crowdfunding is a way of financing where you can raise money from a wider audience. This is usually done online through a platform. That is a website where you can present your idea and raise business funding. Crowdfunding is interesting for startups, but also for already established companies.
Factoring and accounts receivable financing
With factoring and accounts receivable financing (in Dutch), a bank or factoring company (the factor) largely pays the invoices you send. You receive the amount of your invoice directly from them. This means you get paid quickly. The factor then makes sure the customer pays the factoring company.
With reverse factoring (in Dutch), you get a payment guarantee from your buyer for the invoices they approve. Since the buyer is certainly going to pay, the factor can advance your invoice. As a result, your invoice is paid within 5 to 10 days.
Online credit through fintech
A fintech financier arranges financing using online technology. Application, assessment, and disbursement of the loan can be fast. For example, online credit, online working capital, matching platforms, advance credit through an ATM, and an advance credit for an online shop.
Private debt fund
A private debt fund issues subordinated loans to SMEs. In the event of bankruptcy, other creditors then have priority. To qualify, you have to make a profit, have sufficient cash flow, and be unable to get extra credit from a bank. The amount involved is between €250,000 and €10 million. This is intended for growth, innovation, business acquisition, or refinancing.
The stock exchange (in Dutch) is a form of capital, mainly intended for larger companies. On a stock exchange, you may be able to trade securities, such as shares and bonds. Going public is not easily done. It takes careful consideration. Also, strict conditions apply.
NPEX (SME exchange)
The NPEX is a stock exchange for SME entrepreneurs. NPEX focuses on companies looking for capital from €1 million to €10 million. This money is generated by you issuing shares or bonds, which are bought by investors.
With chain financing, suppliers receive a payment guarantee from their customers. This is a form of business financing from producer to buyer, and all the links in between. Your supplier has the certainty that your customer will pay.
A credit union is a non-profit cooperative. It focuses on business loans by entrepreneurs for entrepreneurs. Members of a credit union own a business. The members jointly set policies, elect the board, and are joint owners.
Microcredit is interesting for startups as well as established businesses. Microloans are business loans of up to €50,000. A microcredit is also called microfinance. Sometimes you can get coaching in addition to the money.
Regional development agencies
Regional Development Agencies (ROMs) provide capital to business owners. They can even become shareholders in the companies they provide loans to. There are differences in budgets per province. Look for your options and how to apply for business loans at the Regional Development Agency in your province.
Venture Capital fund
A Venture Capital fund is an investment fund that focuses on high-risk investments. These are often investments in innovative and/or fast-growing companies, usually within a particular industry or sector. You apply for business financing from the Venture Capital fund. You can do so from about €200,000 and almost always at a percentage of your company's shares.
With revenue-based financing, the investor gets a percentage of your sales instead of the usual shares. This is the return for the future. In most cases, this percentage is between 2 and 5%. The investment agreement applies until the agreed maximum is reached. This is often 2 to 3 times the amount invested. So, you earn back your investment faster than with venture capital. The main advantage for you is that you do not have to surrender equity. And also: if sales are down for a while, the repayment obligation is also reduced. Revenue-based financing is interesting, for example, for startups that have outgrown the initial phase.
Dealing with foreign investors
A business owner who attracts a foreign investor must always contact the bank. This is mandatory to prevent money laundering and financing of terrorism (Prevention of Money Laundering and Terrorism Financing Act). The bank must be informed in advance, for example, if a company changes its ownership structure because of a new foreign investor. Through the Customer Due Diligence (CDD) policy, the bank indicates what information is needed. The entrepreneur can gather a significant part of all information himself. In addition, the entrepreneur must request some from the relevant investor.
This process enables you to prepare for the actual investment by a foreign party in your business. You can start collecting the necessary information yourself while requesting part of the information from the intended investor. This may prevent delays and disappointments in the process later on.
Government checks risky investments for national security
As of 1 June 2023, the government checks investments that pose a risk to national security (vifo Act). The security check applies to 2 types of companies in the Netherlands:
- key providers
- companies that have sensitive technology
The security check applies to investments from all countries.
Government subsidies and schemes
A subsidy or other government scheme may be of interest to your company. Your application must meet several conditions. You stand a better chance of receiving a subsidy if your plans are in line with what the government considers important. This includes topics such as international business and innovative ideas or products. But also if your company offers jobs to people with disabilities.
The European Union (EU) grants European subsidies to projects or organisations that serve the interests of the EU. Or that contribute to the implementation of an EU program or policy. The EU reserves more than €300 billion annually for the member states.