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A new way to finance the growth of startups : bonds ! (Part 2)

In part 1, Jean Carvajal explained the various types of crowdfunding available to companies seeking financing, including issuing stocks, bonds and taking out conventional loans. In his opinion, bond financing is a great method as it provides funding flexibility and customisable repayment options without diluting shares. He then explained what unique factors Investbook’s risk committee considers when selecting projects for its crowdfunding investors.

IntoTheMinds: Can you explain how the banks, which use the same controls, could deny funding to the SMEs that use your services?

Jean Carvajal: There are many reasons why a bank would refuse a project that we would otherwise accept. It is difficult to generalise, but the following factors illustrate the current situation, which are also corroborated by the majority of business leaders we meet:

  • Banks do not always like to finance immaterial needs like working capital, communication costs, R&D, human resources, etc., and prefer material and recoverable financing which provides security on assets and thus security for them.
  • Some banks have inflexible criteria like a 1-1 debt-to-equity ratio, or that the last 3 balance sheets must be profitable, etc. Due to very rigid policies or procedures, they do not always take the time to understand a company’s fundamentals, the reasons for a given situation, the cyclicality of business sector, the newness of a market or product, the entrepreneur’s ambition, or any other parameter that would be non-accountable.
  • Banks must adhere to financial commitment limits. They are unable to insure the entire debt for a single SME, and they prefer pooling the risk with other banks or other sources of funding. Taking into account these commitment limits and that they must also consider their own equity (the Basel III ratio), this is not necessarily conducive to any additional credit being granted.

At Investbook, we of course refuse projects that do not have strong balance sheets and which generate red flags about a company’s sustainability and ability to repay. But we find especially that many average SMEs do not even attempt to approach their banks as they already have an outstanding loan and the entrepreneur does not dare ask for a new one, or the entrepreneur thinks that their account manager will not understand the situation, or, and this is what we are frequently told, the entrepreneur feels that it takes too long for a decision to be made.

For this reason Investbook decided to support SMEs and their businesses by providing them with an alternative, customisable, non-banking financing solution and a responsive, long-term relationship.

*About Investbook

Investbook is the first French crowdfunding platform approved by the AMF (the French securities regulator) to invest in bonds. It allows companies to finance themselves through bonds while giving investors the opportunity to buy bonds with attractive returns from French companies.

Image: Shutterstock

Pierre-Nicolas est Docteur en Marketing et dirige l'agence d'études de marché IntoTheMinds. Ses domaines de prédilection sont le BigData l'e-commerce, le commerce de proximité, l'HoReCa et la logistique. Il est également chercheur en marketing à l'Université Libre de Bruxelles et sert de coach et formateur à plusieurs organisations et institutions publiques. Il peut être contacté par email, Linkedin ou par téléphone (+32 486 42 79 42)

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