Financing is one of the biggest challenges for SMEs. What options are available and which fits which situation? An overview of the most important financing sources.
Financing Types Overview
Equity vs. Debt
| Type |
Characteristics |
Examples |
| Equity |
No repayment, participation rights |
Shareholder contributions, VC, business angels |
| Debt |
Repayment + interest, no participation |
Bank loans, bonds, leasing |
| Mezzanine |
Hybrid, equity-like |
Subordinated loans, silent partnership |
By Maturity
| Type |
Term |
Use |
| Short-term |
< 1 year |
Working capital, bridging |
| Medium-term |
1-5 years |
Investments, expansion |
| Long-term |
> 5 years |
Real estate, major equipment |
Traditional Bank Loans
Types
| Loan Type |
Use |
Typical Term |
| Overdraft |
Operating funds |
Indefinite |
| Investment loan |
Acquisitions |
5-15 years |
| Working capital loan |
Current assets |
1-3 years |
| Guarantee credit |
Sureties |
As needed |
Requirements
What banks review:
- Financial statements (2-3 years)
- Current management accounts
- Business plan/investment plan
- Collateral
- Creditworthiness (rating)
Typical Terms
| Parameter |
Typical SME |
| Interest rate |
4-8% (2026) |
| Term |
5-10 years |
| Grace period |
0-24 months |
| Collateral |
80-120% coverage |
| Processing fee |
0.5-2% |
Pros and Cons
| Advantages |
Disadvantages |
| No participation rights |
Collateral required |
| Predictable costs |
Credit assessment |
| Tax deductible |
Covenants |
| Flexibility in terms |
Documentation effort |
Public Funding
KfW (Germany)
| Program |
Target Group |
Terms |
| KfW Entrepreneur Loan |
Established |
Up to 25m, favorable rates |
| ERP Startup Loan |
Startups |
Up to 125k/1m, liability-free |
| KfW Growth Loan |
Growth |
Up to 7.5m |
AWS (Austria)
| Program |
Target Group |
Terms |
| aws Guarantee |
SMEs |
Liability assumption |
| aws erp Loan |
Investments |
Favorable rates |
SECO/SME Support (Switzerland)
- Guarantee cooperatives
- Startup funding
- Innovation support
Advantages of Public Funding
- Lower interest than market
- Often liability exemption
- Longer terms
- Grace periods
Leasing
Types
| Type |
Object |
Special Feature |
| Finance lease |
Machinery, vehicles |
Ownership transfer possible |
| Operating lease |
Short-term use |
No ownership |
| Sale-and-leaseback |
Own assets |
Liquidity from existing assets |
Advantages
- No capital commitment
- Off-balance sheet (depending on structure)
- Quick availability
- Exchange on obsolescence
Disadvantages
- Often more expensive than loans
- No ownership building
- Contract commitment
- Additional costs at contract end
Factoring
How It Works
Company Factoring Company
| |
|-- sells receivables ------------->|
|<-- receives 80-90% immediately ---|
| |
|<-- receives rest after payment ---|
| (minus fee) |
Types
| Type |
Features |
| True factoring |
Default risk transfers |
| Recourse factoring |
Risk remains |
| Confidential factoring |
Customer not informed |
| Disclosed factoring |
Customer is informed |
Costs
| Component |
Typical |
| Factoring fee |
0.5-3% of receivables |
| Interest costs |
5-10% p.a. on advance |
| Setup costs |
One-time |
Suitable For
- Companies with many debtors
- Fast-growing companies
- Working capital constraints
- Industries with long payment terms (construction, trade)
Venture Capital / Private Equity
Difference
| Aspect |
Venture Capital |
Private Equity |
| Stage |
Early (Seed, Series A-C) |
Later (Growth, Buyout) |
| Companies |
Startups, innovation |
Established, cash-generating |
| Risk |
Higher |
Moderate |
| Stake |
Often minority |
Often majority |
Requirements for VC
- Scalable business model
- Large addressable market
- Strong team
- Technological advantage
- Exit perspective
What VCs Expect
| Metric |
Seed |
Series A |
Series B |
| ARR |
<500k |
1-5m |
>5m |
| Growth |
n/a |
>100% |
>50% |
| Team |
Founders |
Core team |
Management |
Mezzanine Financing
Types
| Instrument |
Characteristics |
| Subordinated loan |
Equity-like, fixed interest |
| Silent partnership |
Profit participation |
| Profit participation rights |
Hybrid, flexible |
| Convertible bonds |
Convertible to equity |
When Mezzanine?
- Strengthen equity without giving up shares
- Bank financing exhausted
- Bridging to exit/refinancing
- Acquisition financing
Typical Terms
| Parameter |
Typical |
| Interest rate |
8-15% |
| Term |
5-7 years |
| Repayment |
Bullet |
| Equity kicker |
Often additional |
Crowdfunding / Crowdlending
Types
| Type |
Return |
Platforms (DACH) |
| Reward-based |
Product/pre-order |
Kickstarter, Startnext |
| Equity-based |
Shares |
Companisto, Seedmatch |
| Lending-based |
Interest |
Funding Circle, creditshelf |
Advantages
- Independent of banks
- Marketing effect
- Community building
- Faster decision
Disadvantages
- Public exposure
- Campaign effort
- Not for all business models
- Partly high costs
Decision Matrix
By Situation
| Situation |
Recommended Sources |
| Startup |
Equity, public funding, business angels |
| Growth |
Bank loan, VC, mezzanine |
| Working capital |
Factoring, overdraft |
| Investment |
Bank loan, leasing, public funding |
| Crisis |
Restructuring loan, shareholders |
| Succession |
Private equity, MBO financing |
By Company Size
| Size |
Typical Sources |
| Micro (<1m revenue) |
Equity, microloans, crowdfunding |
| Small (1-10m) |
Bank loan, factoring, public funding |
| Medium (10-50m) |
Bank loan, mezzanine, private debt |
| Large (>50m) |
Capital markets, syndication, PE |
Financing Mix
Golden Rules
- Maturity matching: Finance long-term investments long-term
- Diversification: Don't depend on one source
- Equity ratio: Target at least 20-30%
- Understand covenants: Review before signing
- Compare costs: Calculate effective interest rate
Example Financing Mix
Medium-sized company (20m revenue):
Equity: 35%
Long-term loan: 40%
Overdraft: 10%
Factoring: 8%
Leasing: 7%
Conclusion
Choosing the right financing depends on situation, growth stage, and company characteristics. For most SMEs, bank loans remain the primary source of debt - supplemented by public funding and alternative financing like factoring or leasing.
The combination of different sources (financing mix) and early planning is crucial. Those who only look for financing when urgently needed have worse terms and fewer options.
Financial data for loan discussions: Firmium provides prepared financial statements and metrics as a foundation for your financing discussions.