To borrow a loan for your business, the share that your personal contribution must represent must be between 10% and 30% of the total amount of your investment. Each bank may however have different requirements, it all depends on their own criteria in the matter.
The amount of the contribution requested by the bank to finance your application for professional credit will depend, mainly, on 4 factors: the total capital that you wish to borrow, the duration to repay it, the general quality of the borrowing profile of your company and the nature of the project to be carried out (starting your business, buying equipment, developing your business, etc.).
Depending on the project, the contribution percentage can be more or less important. For example, it will take about 30% of personal contribution to create your business, about 20% to take over an existing business and only 10% for the construction or purchase of commercial walls. But these levels of contribution are subject to variations according to the situation of the professional and the examination of his request.
Good to know: if you do not have the funds to make a contribution, it is likely that your application for professional financing will be refused.
The amount of a contribution is determined during the study of a credit application for professional
The combination of all the banking criteria will allow the adviser to assess the overall risk that the bank will take by agreeing to finance your project. The study of the situation of your company is thus decisive, because the bank will check your solvency, your sector of activity and the competition, your market shares, your turnover, your expenses as well as the state of your Treasury.
Following this meticulous analysis, if the advisor detects a risk of non-repayment deemed high, this will encourage the bank to ask you for a higher contribution for a professional loan? contribution. Conversely, if the analysis of your company shows excellent financial health which is accompanied by a good prospect for your future performance, then the amount of your contribution could be lower.
Good to know: Whatever it is, the bank must believe in your professional project. If it turns out that it is ambitious and that it could considerably improve your forecast turnover for the years to come, then it is possible that the risk will be considered less important and that the amount of the contribution required is only lower.
Why is a contribution so important to take out a business loan?
For most files, the absence of a contribution leads to a systematic refusal of the bank to finance the professional’s project. It is therefore a sine qua non condition which reduces the risks taken by the lender. The fact of paying a contribution for a financing intended for a company is also a means of reducing the capital to have to borrow, to contain the duration of the contract and more generally the cost of the operation.
A contribution will therefore be viewed favorably by the lender. It will allow the professional to optimize the quality of his file to succeed in negotiating better reimbursement conditions. If you support part of your investment with a personal contribution, chances are that you will obtain a better nominal interest rate in your professional loan offer.
How to succeed in making a contribution for professional financing?
The financing of a contribution requires having to mobilize the cash flow of your company. These are equity funds immediately available in a deposit account, a savings account or an investment. The money for a contribution comes from the profits earned through your activity.
The ideal for a company, before embarking on the financing of an ambitious project, is to collect and save a sufficient provisional sum in order to support the contribution of a business loan.
Nevertheless, you have to be careful not to liquidate most of your equity. Indeed, they can be both necessary for the successful completion of its operating cycle, in particular its employees and suppliers, and also be a safety cushion in the event of future financial difficulties. Banks are also vigilant on this subject so that the professional preserves part of his cash.
In the absence of sufficient funds directly available in the company’s accounts, the manager is also entitled to use his own cash. But injecting one’s assets is obviously not without risk, which requires a reflection phase with the advisor.
What are the conditions for obtaining professional credit without contribution?
Obviously, it is good to remember that bank loans without contributions granted to professionals do not represent a majority proportion among all the files. These will mainly be loan offers repaid over a very short period and where the risk of insolvency is very low, given the quality of the borrower profile.
If your need is to obtain funds to support your cash flow, then the contribution will not be necessary. On the other hand, for major projects, such as the purchase of commercial premises or a very expensive industrial machine, the bank will almost always ask for a sum to reduce the amount of the credit.
To avoid having to pay a contribution, or at least to reduce it in order to preserve your equity, your financing file must be of high quality. Therefore, launch your request during a period when your company is performing well and when account management is sound in order to present yourself in the best possible light.
If you are unable to inject a contribution into the operation, or if this proves to be insufficient, consider alternatives: apply for state funding aid dedicated to companies, seek a new investor who could take charge of your contribution or reduce your ambitions by financing a less expensive project.