Quick Guide: Types of Business Financing 2025

INDEX

1. Introduction
   • How to understand the "map" of financial instruments
   • Factors determining their nature
2. Financing by type of provider
   • Public financing
     • National
     • Regional and local
     • European or international
   • Private financing
     • Private investors (Business Angels, VC, family offices)
     • Industrial companies or corporates (corporate venturing)
   • Bank financing
     • Traditional banks
     • Neobanks or fintechs
   • Hybrid financing
     • Public-private co-investments
     • Venture debt and other mixed models
3. Financing by modality
   • Loans (participative, subordinated, bank)
   • Grants and non-repayable aid
   • Capital injection (equity, capital increases)
   • Credit lines and working capital facilities
   • Tax incentives and bonuses
   • Leasing, renting, factoring, and confirming
   • Convertible bonds and other alternative financial instruments
   • Other fiscal instruments (tax lease, technological sponsorship, patent box)
4. Financing by development stage
   • Startup and idea validation
   • First sales and commercial traction
   • Growth and expansion
   • Consolidation and professionalization
   • Diversification or exit
5. Financing by purpose
   • Working capital and operational liquidity
   • Investment in fixed assets (CAPEX)
   • R&D and technological development
   • Hiring and team expansion
   • Marketing and commercial expansion
   • Internationalization and new market entry
   • Financial restructuring or solvency improvement
     

1. Introduction

How to understand the “map” of financial instruments

The map of financial instruments for companies is broad, diverse, and constantly evolving. The business financing market has become increasingly complex, incorporating a growing variety of alternatives beyond traditional banking. Today, entrepreneurs and SMEs can access resources through bank loans, public grants, venture capital, crowdlending, co-investments, or other hybrid instruments.

While this abundance of options is an advantage, it can be overwhelming when looking for the most suitable alternative. Therefore, understanding the characteristics of each funding source is essential to make informed, strategic decisions based on the specific needs of the company and its growth stage.

Factors determining their nature

Each financial instrument has characteristics that make it more or less suitable for certain types of companies, business stages, or specific purposes. Understanding these factors is key to choosing wisely and avoiding costly mistakes.

The source can be public or private, each with its advantages and requirements. Modalities vary between debt, equity, non-repayable aid, or hybrid models. Some instruments are designed for very specific stages of the business—such as startup, growth, or international expansion—while others address particular purposes, such as asset investment, liquidity, or innovation. Knowing these variables is crucial for informed and sustainable decision-making.

The following sections present a complete and up-to-date guide to types of business financing available in 2025, classified by provider, instrument type, business stage, and investment purpose.

2. Financing by type of provider

Depending on who provides the funds, business financing can be divided into several categories. Each source has its advantages, requirements, and response times. Below are the main types of financing according to the provider.

Public financing

Public financing comes from government administrations and agencies and includes aid designed to promote growth, innovation, and other public interest objectives. They usually offer favorable conditions (low interest rates, long terms, or no collateral) since they aim to support economically beneficial projects. Public financing—whether national, regional, or European—is characterized by its focus on priority sectors and low costs. Although it involves administrative procedures and some competition to access (calls and evaluations), it allows companies to finance themselves with often non-dilutive resources (soft loans or grants) and institutional support. Knowing current calls and aligning the business project with public funding lines is key to leveraging these sources.

• National and governmental: Includes programs funded by the central government through ministries, public agencies, or development banks. In Spain, notable instruments include ENISA participative loans or ICO lines for SMEs and innovative startups, as well as state grants for R&D, sustainability, or digitalization. There are also partially repayable aids from CDTI and tax deductions for technological innovation. They usually have large budgets and support strategic goals such as digital transformation or green transition.
• Regional and local: Refers to financing offered by autonomous communities, provincial governments, and municipalities. It adapts to the regional business fabric through grants, subsidized loans, competitions, or co-investments. Many regions have their own development institutes or public investment vehicles. Although amounts may be smaller than at the national level, they stand out for proximity, technical support, and faster processing.
• European or international: Includes instruments from the European Union and other multilateral organizations. Programs like Horizon Europe, EIC Accelerator, structural funds such as ERDF and ESF, and loans from the European Investment Bank channeled through local entities are included. Options from the World Bank or regional development banks also exist. Although alignment with specific calls is required, they provide access to large volumes of non-dilutive capital under very favorable conditions.

Private financing

Private financing comes from individual investors or non-governmental entities seeking financial returns in exchange for their contribution. Unlike public financing, private financing offers greater speed and flexibility: agreements are negotiated directly with investors or corporates, and once convinced of the business potential, they can provide capital for startups quickly. However, it often requires ceding part of ownership or taking on partners in management. Selecting the right investor (angel, fund, or corporate) is crucial to ensure value beyond money and alignment with the company’s vision.

• Private investors (business angels, venture capital, family offices): Comprise professionals who contribute their own capital in exchange for equity. Business angels invest in early stages and provide value through experience and networks. Venture capital funds invest in high-growth potential startups, particularly in seed, Series A, or later rounds, seeking medium-term returns. Family offices invest with a longer-term and more flexible perspective. This also includes impact funds and private equity focused on established companies. This type of financing is usually dilutive but does not require repayment and provides strategic support.
• Industrial companies or corporates (corporate venturing): Large companies have created investment vehicles to support innovative startups linked to their sector. Through corporate venture capital, they invest capital or fund strategic projects to obtain synergies in addition to financial return. This relationship often involves non-financial support (clients, knowledge, or infrastructure) and a more patient approach than traditional VC. For startups or SMEs, it is an opportunity to scale with industrial backing, though strategic alignment with the corporate is necessary.

Bank financing

Bank financing has historically been the most traditional way for companies, especially SMEs with some track record, to obtain resources. It encompasses products offered by financial institutions to provide liquidity or investment, usually in the form of debt.

• Traditional banks: Commercial banks and savings banks offer products such as loans, credit lines, invoice discounting, and bank guarantees. Bank loans finance specific investments or medium-term liquidity, while credit lines provide flexibility for occasional cash needs. Factoring improves cash flow by advancing pending collections. This financing is non-dilutive but usually requires personal or real guarantees and depends on the company’s financial history. In exchange, it offers predictable conditions and a clear relationship: principal plus interest repayment concludes the link. For solvent companies with stable income, it remains a solid financing route.
• Neobanks and fintechs: In the last decade, new players have emerged offering more agile and digital credit alternatives for businesses. Neobanks are fully online banks with lower costs, sometimes offering loans and credit lines to SMEs with simplified procedures and fast decisions, using technology for risk analysis. Specialized fintech platforms offer P2P loans (crowdlending), online invoice advances, factoring, revenue-based financing, and other innovative methods. These digital entities provide faster, tech-enabled solutions, though amounts may be lower and costs higher, allowing credit access even when traditional banking requirements are not met.

Hybrid financing

Hybrid financing combines elements of debt and equity or mixes public and private funds, offering flexible solutions when traditional models do not fit. It is especially useful for startups looking to grow without excessive dilution or companies that cannot easily access bank financing.

• Public-private co-investments: Schemes where public funds and private capital invest jointly in companies, sharing risks and aligning interests. Typical examples are public-private venture capital funds, where part of the fund comes from a public institution and the rest from private investors. These funds focus on stages or sectors to promote (e.g., technology, sustainability) and thanks to public support, can offer better conditions or take on riskier projects than a purely private fund.
• Venture debt and other mixed models: Venture debt is a hybrid financing instrument designed for startups and scaleups. It combines bank debt characteristics with equity elements. In practice, it works as a loan to a company backed by investors (after a VC round) but often includes an option to convert into shares (warrants). It is used to extend liquidity between rounds, usually with higher interest than traditional bank loans. Other mixed models include convertible loans, SAFE agreements, and revenue-based financing. They adapt financing to risk, growth, and cash needs, particularly for scaling startups.

3. Financing by modality

Another way to classify types of business financing is according to the modality or financial instrument used—i.e., how the financial support is structured: loan, equity, grant, lease, etc. Below are the most common financing modalities for SMEs and startups, with their main characteristics:

• Loans (bank, participative, subordinated):
  Consist of an amount the company must repay with interest. Traditional bank loans require collateral and are used for working capital or specific investments. Participative loans, such as ENISA loans, combine debt and equity: no guarantees, interest linked to performance, and subordinated in case of bankruptcy. They are useful for startups with potential. Subordinated loans are also behind other creditors and usually have higher interest rates. In general, loans provide liquidity without dilution but involve future obligations.
• Grants and non-repayable aid:
  Non-repayable funds granted by public or private entities for projects with impact (innovation, digitalization, efficiency, etc.). Applications, justification of expenses, and sometimes co-financing are required. Although they do not create debt or dilute ownership, monitoring and control are necessary. They are key to reducing investment costs in strategic projects. Examples include Next Generation EU funds and private innovation awards.
• Capital injection (equity):
  Capital contribution in exchange for shares or ownership stakes. Can come from new investors (venture capital) or existing partners (capital increase). It does not create debt but implies dilution. Essential for startups with high uncertainty and growth needs, it improves solvency and often involves strategic engagement from new partners. Includes seed rounds, Series A/B/C, pre-IPO, or accelerator equity.
• Credit lines and working capital facilities:
  Flexible financing to cover cash flow needs. The company accesses a limited amount and pays interest only on what is used. Useful for managing working capital (payments, inventory, payroll) in businesses with irregular or seasonal revenues. Includes trade credit with suppliers and tools guaranteeing immediate liquidity for operational expenses.
• Tax incentives and bonuses:
  Do not provide direct funds but improve liquidity through tax savings. Examples: R&D tax credits, social security contribution reductions for hiring, or employee training incentives. While they do not generate cash, they free up resources for reinvestment. Especially relevant for innovative companies if managed correctly.
• Leasing and renting:Allow access to assets without immediate purchase. Leasing includes a purchase option at the end of the contract, ideal for machinery or equipment long-term. Renting is pure rental (no purchase option) and includes maintenance, useful for assets frequently renewed like fleets or technology. Do not tie up capital, and payments are tax-deductible, though total cost may be higher.

4. Financing by development stage

Financing needs change depending on the company’s stage. Correctly identifying the stage helps target the most suitable sources based on risk, objectives, and business type. Common stages include:

1. Startup and idea validation (pre-seed / seed):
   In this initial stage, still validating the business model, funding usually comes from founders (bootstrapping), close network (FFF: friends, family, and fools), or incubators and accelerators providing seed capital along with mentorship. Specific public aids exist (like NEOTEC or local grants for entrepreneurs), microloans, and business angels investing small tickets in promising projects. Increasingly, reward-based or equity crowdfunding is used early to validate the product and obtain initial capital. Goal: build an MVP, get real feedback, and prove the model’s viability without generating debt or losing flexibility.
2. First sales and commercial traction:
   Once the model is validated and first metrics exist, the company seeks financing to consolidate its offering and grow the customer base. Early soft public loans (e.g., ENISA Young Entrepreneurs), new rounds with angels or small funds, and some bank lines become relevant if there’s revenue. Grants for hiring, digitalization, or R&D can also be accessed. Key: demonstrate traction to convince financiers that the company can scale with the right resources, reducing perceived risk.
3. Growth and expansion:
   At this stage, with a proven model and consistent metrics, resources are needed to scale: hiring, entering new markets, or accelerating marketing. Startups seek Series A or B rounds, sometimes combined with venture debt to extend runway without more dilution. Traditional SMEs may use expansion loans or larger credit lines. Public funding exists for this stage (e.g., ENISA Growth). Focus: rapid growth, market share acquisition, combining private investment, strategic debt, and innovation or internationalization grants.
4. Consolidation and professionalization:
   With an established business, the goal shifts to optimizing operations, modernizing processes, or strengthening financial structure. Long-term bank financing is often used for technology investments, machinery renewal, or automation. Leasing, credit lines, and public grants for digitalization or energy efficiency are common. Sometimes refinancing previous debts or bringing in private equity partners to provide capital and professionalization is pursued. This stage reinforces solvency, plans new investments, and ensures long-term competitiveness.
5. Diversification or exit:
   When launching new business lines, expanding internationally, or preparing an exit (sale or IPO), financing needs grow and become more sophisticated. Tech scaleups pursue Series C or D rounds with international investors. Established SMEs may use syndicated loans, bond issuance, or strategic partners. Public lines for internationalization (e.g., ICO Exporters) and tools like project finance or technological sponsorship are available for major investments. For exits, VC funds or mixed structures help ease the transition.

5. Financing by purpose

The appropriate financing depends on the use of funds. Covering payroll is not the same as developing technology. Matching each need to the most efficient instrument minimizes costs, avoids over-indebtedness, and maintains flexibility.

• Working capital and operational liquidity:
  To cover daily expenses (payroll, suppliers, stock), use credit lines, factoring, confirming, or short-term loans. Fintech solutions and flexible payment agreements are also relevant. Key: size lines correctly to avoid overpaying or falling short, combined with good working capital management.
• Investment in fixed assets (CAPEX):
  For durable assets (machinery, technology, property), medium- or long-term loans, leasing, or renting are typical. Investments can be supported by sector grants (e.g., energy efficiency or digitalization) to reduce financial burden. Sale & lease-back allows liquidity without losing asset use. Goal: let the asset generate cash flow to repay financing.
• R&D and technological development:
  Innovation requires dedicated funds, as returns are uncertain and long-term. Grants (e.g., CDTI), subsidized loans with grace periods, R&D tax deductions, and early-stage venture capital are combined. Technological sponsorship allows financing without debt or dilution, leveraging third-party tax incentives. Often structured combinations: CDTI aid to launch the project, tax deductions to reduce cash impact, and a sponsor investor to complete financing. Enables tackling tech projects without straining cash.
• Hiring and team expansion:
  Expanding staff implies immediate costs offset over time. Usually financed via internal resources, investment rounds, or short-term loans. Public hiring aids and social security contribution reductions lower initial costs, especially for youth, unemployed, or researchers. In startups, hiring is often a major fund allocation, as the team is key to scaling.
• Marketing and commercial expansion:
  Launching campaigns, opening sales channels, or attending trade shows requires upfront investment. Can be financed via part of an investment round, specific loans, or revenue-based financing adjusting repayment to generated income. Public internationalization grants cover foreign commercial activities. In e-commerce or SaaS, some fintechs finance digital campaigns with payment tied to results.
• Internationalization:
  Expanding into new markets requires adapting products, hiring local teams, or opening subsidiaries. Can be financed via ICO International, FIEM, EU programs (InvestEU, EIB), or international factoring. Local partners may co-finance, or investors may provide capital specifically for internationalization. Planning is key as returns may be delayed.