Your company’s capital
Your company will need capital for launching and maintaining its operations. Capital includes equity capital and liabilities. Liabilities include the loans granted for your company and equity capital all other forms of capital. They balance each other out, which is why your company's capital structure should include both. The most suitable capital structure depends on your company.
Equity capital includes the capital investment in your company, the profit produced by your business and the increase in your company’s value. Your company does not have to pay equity capital back to investors.
Owners often invest equity capital into a company in the form of money or other assets, particularly at the establishment phase. If you do not have money of your own, use other sources of capital or liabilities.
Once your company starts making sales, it starts accumulating a cash flow. It is an important, continuous source of equity capital.
Equity investors invest money in your company in return for shares or equity holding. They also benefit your company with their networks and competence. You can get equity investments from an equity investment company, such as Tesi and private capital investors, such as business angels.
Your company may also receive equity capital as subsidies. You can apply for public subsidies from Business Finland, ELY Centres and Leader groups, for instance.
Liabilities are a form of loan which you must repay with interest. The loan does not give creditors the right of ownership in your company. Liabilities are divided into account-based and market-based loans.
Account-based loans include loans from banks and insurance companies. Your loan will remain with the same creditor for the entire duration of the loan as trading with these kinds of loans is not possible.
Market-based loans include deposit certificates and bond infusions. Your company may not know who is the creditor at a given time. This is because market-based loans can be bought and sold for investment purposes.
In accounting, liabilities are divided into short-term (less than a year) and long-term (over a year) liabilities. Short-term liabilities include commercial debts and unearned income. Long-term liabilities include loans from banks and insurance companies, and bond infusions.
You can apply for a loan from a bank and other finance companies as well as insurance companies, for instance. In the public sector, loans are granted by Finnvera and Business Finland, for instance. Finnvera's loan guarantee can be applied for as a security to help in the loan financing.
Getting a loan from a bank or some other private loan requires your company’s capacity to repay the loan, or its creditworthiness. A funding provider will often require a guarantee for a loan, which can be your company’s assets, for example.
Many banks also require a guarantee from the company's owner for the loan. The bank wants to ensure that the entrepreneur is able to repay the loan and that they trust in their repayment capacity. Some companies that grant loans for enterprises may grant loans without guarantees, but in this case, the interest charges are higher.
You can get a loan for your company’s investments and developing your activities, for example. A loan may be from a few thousand euros up to millions of euros. Issues that affect the amount include your company’s creditworthiness, guarantees and the amount of personal funding as well as the purpose and repayment period of the loan.
You can apply for a loan, subsidies, capital investments and a guarantee from the public sector. Read about the conditions of financing programmes on a case-by-case basis.
Most programmes require making your own contribution to your company’s finances, typically 25–75 per cent. Your company’s age, size and industry also affect which financing you may apply for. You can receive public financing from thousands of euros to millions of euros.
The ideal capital structure of a company usually includes both equity capital and liabilities. Their shares are affected by your company’s industry and the situation in the financing market, for instance.
As rule of thumb, equity capital should cover at least 30 per cent of the company's financing needs. Your company may operate with even a small amount of equity capital as long as it is capable of coping with its payments.
Equity capital is more flexible than liabilities. You may decide on profit distribution based on your company’s financial status. For liabilities, you must make repayments regardless of the situation. Equity capital will also provide safety to your company in case of problem situations.
Liabilities are often considered cheaper. Their risks are lower and the requirement for making revenue is therefore smaller than with equity capital. However, if your company has too much liabilities, the costs and risks for the financing as well as the threat of bankruptcy grow.
If your company has problems in the repayment of capital, negotiate about the payments at once. This may help you avoid any bigger problems.
Your company will typically be aware of the system costs for liabilities in advance. They are typically smaller than similar equity capital costs. When you take a loan, you do not have to give up rights of ownership or voting rights. You may also deduct the interests of a loan in taxation.