Access to funding is the cornerstone of development for any business. Financing of investment concepts in addition to working capital requirements may be acquired from various sources:
|SOURCES OF FINANCING OF THE INVESTMENT PROJECTS|
|Traditional debt securities||Intermediate instruments||Equity capital|
|Mezzanine financing!EU funds||Stock issue!Venture Capital / Private Equity / Family Office|
Choosing one of the financing forms implicates two significant consequences for the enterprise: change of the cost of capital and in the level of risk. In each of the cases, acquisition of capital necessitates the evaluation of the enterprise that applies for funding. Acquiring funds from a bank – loans (based on the data acquired from the Polish banking sector):
1. Determining the level of financing needed
Banks in Poland expect clients to contribute equity capital to the enterprise on each occassion . Depending on the type of financing and internal structure of the transaction the level of equity contribution to investment might be:
- at least 20% for typical investment projects – existing enterprise, going concern
- at least 30% for building projects
- 0% for working capital financing
- 0-90% for non-standard projects, requiring exceptional solutions or introduction of entirely new products – negotiated with the bank individually
2. Prohibitions and legal constraints
Polish banks refuse to fund any project in the operations generally perceived as unacceptable due to legal concerns or any other issues arising from other factors: purchase of land, weapon and slave trade, narcotics, gambling and smuggling.
3. Industrial differentiation
Banks also take a customised approach to select investments:
Banks demand collateral adequate to the type of transaction. These are most usually:
Ratio of the collateral value to credit value is dependent upon on the transaction risk, loan period and debtor’s credit score. The average value of this ratio is 1.5 (example: a loan worth PLN 1 million requires PLN 1.5 million collateral). Note that banks use their own methodologies to assess the required value of collateral.
5. Basic documentation
Basic documentation required to obtain investment financing is a business plan. Assumptions and forecasts for the plan should include scenarios based on risk factors and guarantee capability of loan repayment.
6. Terms of loan at Polish banks:
Financing investments that are partially subsidized – it is a prerequisite that the subsidy is not substitute for equity capital and business plan should account for that scenario that the subsidy may not be awarded.
How we can assist you:
- Transaction structure – Connect with us should you wish gather further information in relation to feasible investments or transaction structures in addition to the model of funding your projects.
- Business plan – The Invest in Wrocław team will provide you with information on the requirements of Polish banks and financial institutions concerning the business plan preparation for investment projects.
- Own contribution – We will provide you with practical advice on what elements of the investment might be qualified by banks as equity capital.
- EU subsidies – The Invest in Wrocław team will supply you with information regarding the possibility of financing the investments through European Union funding or alternative domestic sources.