In the vast majority of cases, the financing of SMEs through bank loans is linked to the personal liability of the owners or managing partners. This is a standard collateralisation of commercial banks and savings banks, which is often justified with “If you don’t believe in your company, how can we as a bank? For the guarantor, the scope of liability resulting from the legal form of the company extends to the private sphere. If this constellation is not actively shaped, experience shows that there will be far-reaching consequences for the guarantor, but also for the company. In addition to liability for the company’s debts, there may also be restrictions on succession planning. The focus is on a clear financing strategy that includes the structuring of the liabilities side of the company as well as the conditions of the debt capital – including interest, collateral and covenants.
Enabling Financing Without Banks
A basically “simple” way is to be independent of banks, so that the company can finance itself without bank loans. A good earnings situation, a stable equity base in the required amount and, in case of doubt, a distribution or withdrawal policy geared to the objective are important cornerstones that must be integrated into the associated financing strategy. Alignment with these cornerstones enables companies to become independent of bank financing step by step. This step does not necessarily mean that the company is restricted in its room for manoeuvre. The use of alternative forms of financing enables constant investment activity and the financing of working capital.
The active management of equity positions can be an important instrument for obtaining private assets free of liability. The shareholders withdraw liquidity that is not required and invest it outside the company. When financing is needed, these funds are made available to the company again. An attractive alternative can also be the lump-sum endowment fund, also called the “bank within the company”. The company chooses the lump-sum provident fund as the implementation method for occupational pension provision and thus retains significant amounts in the company’s financial cycle. This is to the advantage of the employees. This liquidity provides for existing financing needs outside of bank financing.
Becoming Independent
The successive strengthening of the asset side with valid assets opens up another way of keeping private assets free from liability for the company’s obligations. These assets strengthen the negotiating position with potential lenders that they can be used as collateral for bank loans. Stable economic conditions with corresponding company assets that are acceptable to banks in relation to the desired financing are a good basis for granting loans to companies without backing them with guarantees.
Temporary risk financing can be a sensible alternative for achieving entrepreneurial goals with bank financing. In this case, the financing is directed towards a defined project. The returns resulting from this project secure the debt service. Combined with a corresponding equity contribution to the project, sensible debt financing is conceivable, which only requires the company to assume liability for a certain period of time.
Roadmap is Important
A well thought-out strategy is essential for both bank-independent financing and temporary risk financing. To achieve the goal of liability-free private wealth, a clear roadmap should be followed. The financial strategy should also be communicated transparently with the lenders. Regardless of whether it is bank-independent financing, private investors or the bank in your company: the finance experts of THE MAK`ED TEAM develop a forward-looking concept with the right financing mix – tailored to the company and the entrepreneurial family.
