INDEX
1.Introduction
- What is business financing?
- Importance of financing as a growth lever
2. Why seek financing?
- Key reasons to obtain financing
- Advantages of financing over self-funding
- Financing as a strategic tool, not just a temporary resource
3. What to use financing for?
- Investment in growth (commercial expansion, new markets)
- Technological development and product improvement
- Hiring and team expansion
- Internationalization
- Strengthening financial structure and solvency
4. Key considerations when seeking financing
- Applicant profile
- Financial cost and terms
- Dilution vs. non-dilution
- Timelines and approval times
- Internal resources and required dedication
- Fiscal impact of different options
5. Which companies are most likely to secure financing?
- Profitability and economic sustainability
- Solvency and solid financial structure
- Liquidity and ability to meet obligations
- Clarity in business model and value proposition
- Experience and commitment of the management team
- Scalability and growth potential
- Regulatory compliance and good governance
6. Main types of financing by nature
- Financing by type of entity
- Financing by modality
- Financing by stage of development
- Financing by purpose
7. Which financing fits each type of company?
- Based on degree of innovation and scalability potential
- Based on age and stage of development
- Based on solvency and liquidity
- Based on control and dilution preferences
- Based on purpose of the financing
8. Typical financing cycle for startups and SMEs
- For startups: from bootstrapping and FFF to seed, Series A/B, venture debt, and exit
- For SMEs: initial financing, bank loans, grants, reinvestment, and consolidation
9. Common mistakes to avoid when seeking financing
- Failing to plan or compare options
- Incomplete documentation or unrealistic projections
- Overestimating needs or underestimating requirements
- Relying on a single funding source
- Failing to assess impact on ownership and control
- Requesting financing too late without anticipation
10. How to prepare your company to seek financing
- Planning and key documentation
- Business plan and financial projections
- Review of team and corporate structure1. Introduction
1. Introduction
What is business financing?
Business financing is the process of obtaining external economic resources for a company. This may involve different sources (banks, investors, public agencies, etc.) and various instruments (loans, equity issuance, grants, etc.). Essentially, financing means securing the necessary capital from third parties to start a business, grow it, or maintain operations without relying solely on the company’s own funds.
Importance of financing as a growth lever
Obtaining financing not only covers needs but also acts as a lever for business growth. Well-planned financing allows companies to accelerate expansion and seize opportunities that would be difficult to pursue with limited internal resources. In a competitive environment, accessing external capital can translate into higher productivity, innovation, and market reach, turning the obtained credit or investment into a strategic engine for sustainable growth. In other words, financing is not simply “extra money,” but a strategic instrument that, when used properly, drives the company’s evolution and long-term value.
2. Why seek financing?
Seeking financing is not just a matter of necessity but of strategy. It is often associated with urgency or lack of resources, but in reality, external financing can be key for companies seeking to expand, innovate, or stabilize cash flow.
This addresses the internal question a company may ask itself: “Why should I seek financing?” Below are the main reasons companies opt for external financing:
- Boost growth and expansion: Accessing financing allows scaling operations, launching new products, entering new markets, or strengthening the commercial structure without waiting to generate sufficient profits.
- Innovate and develop products: Investing in R&D, launching a new service, or developing proprietary technology requires resources. External financing helps companies stay competitive in dynamic and demanding markets.
- Optimize cash flow and operational stability: Even profitable companies may face cash flow tightness. Capital from external sources helps maintain operations without stress, especially in businesses with long payment cycles or seasonality.
- Seize investment opportunities: Whether acquiring another company, accessing stock at favorable prices, or launching a key campaign, financing provides flexibility to act quickly when opportunities arise.
- Protect personal assets: Early-stage founders often finance with personal resources. External capital allows risk distribution and avoids unnecessarily jeopardizing personal assets.
- Improve credibility: Backing from a public agency or investor builds trust and validates project viability to clients, partners, or future financiers.
- Fund specific projects or inorganic growth: From facility upgrades to digital transformation or mergers and acquisitions, external financing allows these milestones without draining operational cash.
- Leverage tax advantages: Some financing forms offer tax deductions, optimizing tax burden and improving overall business profitability.
- Strengthen working capital and financial structure: A solid base allows timely payments, stable supplier relationships, and smooth operations.
- Prepare for unforeseen events or crises: A financial cushion enables resilience against regulatory changes, demand drops, or unexpected events.
In short, external financing can be the difference between reactive growth and strategic growth. Choosing the right timing, type, and modality of financing is key to maximizing this tool.
3. What to use financing for?
Obtaining financing is just the first step. The real difference lies in using the capital intelligently to drive business development.
Unlike the reasons for seeking financing, this answers the tactical question: “How should I use the funds once I obtain them?” Focus is on concrete uses of capital to generate real value.
Common strategic uses include:
- Commercial expansion and operational scaling: Opening new branches, expanding facilities, increasing production, or scaling marketing campaigns. Financing accelerates revenue growth and market share.
- Technological development and product improvement: Developing software, digitizing processes, implementing AI, or enhancing products. Financing enables continuous innovation and competitive advantage.
- Hiring key talent and strengthening teams: Recruiting specialists or executives, covering salaries, training, and retention to increase operational and strategic capacity.
- Accessing international markets: Covering market studies, legal adjustments, local marketing, offices, and native staff. Financing makes internationalization realistic.
- Operational efficiency through process investment: Implementing management tools (CRM, ERP), optimizing supply chains, or reducing production costs for scalable and profitable operations.
- Financial consolidation and balance strengthening: Restructuring debt, converting short-term obligations, or injecting liquidity to improve financial ratios and credibility.
- Funding transformative projects: Acquisitions, sustainability initiatives, or certifications that transform the business beyond operational needs.
4. Key considerations when seeking financing
Seeking financing can be crucial for business growth, but it also comes with obligations. Each instrument has its own requirements, costs, and consequences, so understanding what each option entails before applying is essential.
- Company profile: Not all financing sources are suitable for every company. Some public programs require innovation or social impact; banks prioritize solvency and history; investors look for scalability and return potential. Factors like company age, sector, turnover, and team experience directly influence access to financing. Knowing your profile is the first step to properly focus your strategy and avoid wasting time on options that don’t fit.
- Cost and terms: Interest rate, repayment term, and possible grace periods are key for loans. Additionally, consider extra conditions: guarantees, milestones, reporting, and monitoring. Evaluating the real cost of financing means looking beyond the interest rate and understanding the level of commitment required.
- Dilution vs. non-dilution: Some options, like bringing in investors, involve giving up part of the equity and sharing decisions; others, like loans or grants, allow retaining control but require repayment or justification. The choice depends on company stage and strategic priorities. Equity dilution can accelerate growth if the partner adds value but reduces control. Non-dilution preserves ownership but assumes full financial risk.
- Timelines and approval: Not all financing paths are equally fast. Bank loans may take weeks; public grants, months; investor rounds, even longer. Anticipating timelines is key to avoid cash flow tension and align financing with real business needs.
- Internal resources and dedication: Applying for financing requires time and preparation. Business plans, financial documentation, meetings, and process management are needed. Companies may require external advisory if internal resources are limited. Also, define who will coordinate the process internally without neglecting operations.
- Fiscal impact: Different financing types have distinct tax implications. Loan interests are usually deductible, reducing effective cost. Grants may be taxed as income. Capital from partners does not generate repayment obligations but also offers no tax deduction. Evaluating tax effects helps choose the most efficient option.
5. Which companies are most likely to secure financing?
Financiers and investors focus on qualities that increase confidence in repayment and return. Paradoxically, companies with the highest chances are often those that need financing least urgently. Lenders generally avoid rescuing businesses in distress; they prefer joining already healthy and promising projects.
Companies that successfully attract financing usually share these traits:
- Profitability and economic sustainability: A history or credible projections of profitability is highly valued. Sustainable business models with solid margins, cost control, and a plan to reach break-even are signals that attract financing.
- Solvency and solid financial structure: A balanced and healthy financial position reassures lenders and investors. Low-to-moderate debt ratios and proper equity-debt structure indicate prudent management.
- Liquidity and ability to meet obligations: Cash flow management is critical. A profitable business that lacks liquidity can default on payments. Showing contingency plans and operational cash generation inspires confidence.
- Clarity in business model and value proposition: Investors and banks need a clear explanation of how the company makes money, its market, and why customers will pay. A coherent business plan and defined strategy enhance credibility.
- Experience and commitment of the management team: “We invest in teams, not just ideas.” A skilled, committed team with complementary abilities increases financing probability. Investors value founders who have “skin in the game” and a clear talent plan.
- Scalability and growth potential: High growth potential attracts venture capital and business angels. A scalable model capable of rapid revenue growth without proportional cost increase enhances funding attractiveness.
- Regulatory compliance and good governance: Companies with legal compliance and transparent governance reduce risk perception. Clear accounts, operational documentation, and proper internal controls increase credibility.
6. Main types of financing by nature
Understanding the main categories helps grasp the available options and their characteristics:
- By type of entity: Public (government, regional, EU) vs. private (investors, venture capital, banks). Some combine both in co-investment or public-private funds.
- By modality:
- Debt (loans, credit lines, factoring, leasing) – repayment with interest.
- Equity (investment for ownership) – dilution and partial control.
- Non-repayable (grants, fiscal incentives) – require justification.
- Hybrid (participative loans) – combine debt and equity characteristics.
- By development stage: Early-stage companies rely on grants, equity, or loans with grace periods; mature companies can access bank loans, credit lines, or investment for operational or capital needs.
- By purpose: Align financing type with the intended use: fixed assets, working capital, internationalization, digitization, innovation, or hiring.
7. Which financing fits each type of company?
- Public financing
- Ideal for startups and SMEs innovating, investing, or creating social impact.
- Pros: Often non-repayable or low-cost.
- Cons: Long processing times, requires documentation and follow-up.
- Examples: Grants (R&D, hiring, expansion), soft loans (ENISA, IVF), tax deductions (R&D), social security bonuses.
- Bank financing
- Suitable for profitable SMEs or startups with recurring revenue.
- Pros: Standardized procedures, relatively quick.
- Cons: Requires repayment capacity and guarantees.
- Examples: Loans (machinery, expansion), credit lines (seasonal cash needs), factoring/confirming, leasing/renting.
- Private financing
- For startups scaling, validating market, or attracting talent; also innovative SMEs seeking strategic partners.
- Pros: Access to capital in early stages, mentoring, network.
- Cons: Dilution, longer, competitive process.
- Examples: Crowdfunding, crowdlending, FFF, business angels, venture capital, incubators/accelerators.
8. Typical financing cycle for startups and SMEs
- Startup & idea validation: FFF, incubators/accelerators, grants, seed capital, crowdfunding.
- Early sales & traction: Business angels, crowdfunding, participative loans, innovation grants.
- Growth & expansion: VC rounds, public co-investment, growth loans, CDTI grants.
- Consolidation & professionalization: Bank debt if profitable, venture debt, Series B/C, bridge financing.
- Diversification or exit: Sale, secondary shares, private equity, IPO; for SMEs: succession, acquisitions, private equity.
9. Common mistakes to avoid when seeking financing
- Failing to plan or compare options: Leads to suboptimal terms.
- Incomplete documentation or unrealistic projections: Reduces credibility.
- Overestimating needs or underestimating requirements: Creates distrust or financial stress.
- Relying on a single source: Diversify financing options.
- Not assessing impact on control/structure: Understand debt vs. equity consequences.
- Requesting financing too late: Limits negotiation power and increases risk.
10. How to prepare your company to seek financing
- Keep documentation up-to-date: Accounts, contracts, tax filings, legal documents.
- Prepare realistic financial projections: Revenue, expenses, EBITDA, cash needs.
- Clarify the use of funds: Be specific about objectives and expected impact.
- Validate the business model: Metrics demonstrating traction (sales, users, contracts).
- Review corporate and governance structure: Equity, shareholder agreements, readiness for new investors.
- Organize legal and fiscal matters: Be compliant with taxes and social security.
- Understand the type of financing needed: Tailor strategy and documentation accordingly.
In summary, seeking financing in 2025 requires strategic understanding, clear allocation of funds, awareness of available options, and careful internal preparation. Proper planning and avoiding common mistakes turns financing into a growth ally, enabling companies to elevate projects to the next level.
At Kleo, we help identify the best grants, loans, and investments for your SME or startup and prepare your application to maximize success.
Contact us and turn your growth objectives into real results.
