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Further Below: Our Guide To Business Loans in Spain, Everything you need to know.
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Business Loans in Spain, All You Need To Know:
We explain everything you need to know to finance your business, from types of credit or grants to which documents to submit, and how to get the best business loans at the moment:
[UPDATE] What economic measures has the Government implemented for companies through covid-19?
The Government has published in the BOE the Royal Decree Law 8/2020, of March 17, of urgent measures to face the economic and social impact of the COVID-19. This text includes different social, health and economic measures to solve this crisis.
In relation to financing measures to help companies and self-employed workers in the face of the crisis of this pandemic, we find the following points in CHAPTER III:
Approval of a line for State funding coverage
- The Ministry of Economic Affairs and Digital Transformation will provide guarantees for financing granted by credit institutions and CFE’s and payment institutions to companies and self-employed persons for:
- Invoice management
- Need for working capital
- Expiration of financial or tax obligations
- Other liquidity needs
- It will grant guarantees for a maximum amount of 100,000 million euros
- The Government guarantee for SMEs may reach up to 80% and will allow for greater fluidity and speed of the entities to grant loans.
- Extension of the ICO’s debt limit in order to increase the ICO Lines
- The debt limit for the Instituto de Crédito Oficial (ICO) is increased by 10,000 Million Euros to facilitate the need for additional liquidity for SMEs and self-employed workers through the intermediation of financial entities.
The ICO will take the necessary measures to make the financing available more flexible and to improve access to credit for companies
Extraordinary line of insurance coverage for export companies
- With a duration of 6 months from the entry into force of this royal decree law, the creation of an insurance coverage line of up to 2 billion euros is authorized from the Internationalization Risk Reserve Fund
In addition, the BOE also includes other measures that affect SMEs and the self-employed, such as the deferment of tax obligations, among other measures.
Distinguishing types of company profiles
In order to obtain financing for our company it is important to take into account that each type of business will be able to access a different type of financing. The characteristics of each company will define the way in which we can get money. These are the different forms of business that exist:
- Entrepreneurs: this is an idea, technically they do not exist and require financing to start. By having only one “idea” that supports them, this type of profile can access a type of funding very focused on their characteristics
- Start-ups: we refer to companies that already exist, but are not very consolidated. This means that they have hardly any seniority and, therefore, a changing and probably low income. They are in a growth phase and the type of financing they will be able to obtain must be towards that goal.
- Consolidated companies: it does not matter if they are micro-SMEs, SMEs or large companies. These are companies with a longer history and a fixed income, that is, stable and guaranteed companies that give the lending institution another type of security.
- Large companies: these are companies that operate nationally or internationally and have a turnover of millions of euros. Companies like Telefónica, Endesa or banks whose financing needs are in the millions.
- As legal entities: they are professionals who work on their own account and who may require financing for their business. Depending on their income, they will also be treated as “start-ups” or “consolidated companies”, but with loans whose characteristics are adapted to a single person.
- As natural persons: they are considered people with an income that comes from another source than that of an employee. This implies that they can get personal loans to finance their particular projects such as buying a car or renovating their house.
Characteristics of business loans
Every business loan is a world and its characteristics will vary greatly depending on the type of credit and profile of our company, as well as our negotiating power. Although the parameters to be watched to know if we are facing a good offer will always be the same:
- Cost. According to the latest data published by the Bank of Spain in November, the average cost of loans to companies of up to 250 thousand euros is 3.11% APR according to the latest data published by the Bank of Spain in December 2020, although the cost may vary depending on the type of credit company and our profile.
- Amount. This is one of the most complicated parameters to justify, as it will depend on the purpose and growth prospects of each company.
- Purpose. We can find different purposes such as working capital to have liquidity, investment to grow the business, obtaining goods, paying suppliers or collecting invoices among others.
- Linkage. Especially in banks, financing always comes with related products such as insurance, business accounts or other products of mandatory recruitment.
- Term. The terms may range from 3 months to 48 months on average. Depending on the type of credit (loan, credit line, renting…) the term will vary.
- Grace period. It is a period, generally initial, by which the payments are “paused”. It is useful when we expect that the money from the financing will bring us benefits at a certain time.
- Guarantee. Depending on the amount we request and our profile as a company, entities may require “payment insurance” with a guarantee or collateral.
- Speed. Sometimes some entities may take up to three months to grant us the money, in others only two weeks. To know the times of concession of each lender also is important to know when we will be able to begin to move.
- Repayment. Depending on the type of loan, we can find funding that is repaid each month in installments or at the end of the term all together plus interest, so it is important for our finances to take this information into account.
Where to get business loans
The evolution of technologies applied to finance, known by the English term fintech, has favoured the creation of new companies that grant loans to companies with all kinds of financial products. These are the different current alternatives to which we can turn if we want to apply for a loan to revitalize or launch our business:
- Banks: this is the most popular option for finding loans for companies. Generally, in order to obtain this type of financing we will need a high level of solvency. However, there is a new trend among banks to offer loans for SMEs by improving conditions and accelerating the granting process.
- Companies and private capital lenders: these companies have the advantage of offering their products with a processing through the Internet. This speeds up the process considerably. In addition, the price of their financial products compete directly with those offered by banks, often surpassing their offers.
- Alternative financing platforms for crowdlending: these platforms are companies that will put us in contact with private investors who will decide whether to contribute working capital to our requests for business loans. These investors will receive benefits according to our level of risk, which we will pay them in the form of interest. All the processing of these credits is done online and in 48 hours we will be able to obtain an answer.
Many factors influence the decision to opt for one lender or another, especially those specific to our business and its peculiarities. An analysis of our capital needs and our payment capacity will allow us to compare between the loans for companies that fit our profile.
Business loan conditions
The requirements for obtaining financing will not only vary with the type of loan we go to, but also with the entity with which we decide to apply for the credit. However, there are some basic conditions that all companies must meet in order to obtain loans:
- National registration: it is important that the company has its fiscal headquarters in Spain. This is because the products offered by these financial institutions are regulated by Spanish law and are in line with the conditions of our financial market.
- Annual income: it is very likely that we are required to have a minimum income to ensure that the company has solvency and can afford the debt to which it commits. Sometimes, we will also be asked for a document with a history in which we certify that we have made profits during certain years.
- Seniority of the company: most of these products are designed to make our business grow, so they require the company to be consolidated and at least 12 months old. However, there are some new business loans that we can access even if our business has been in operation for a short time or we are just starting up.
- Not appearing on RAI: our company cannot appear on RAI, the list of companies’ defaults. If this is the case, the only way to obtain financing for our company will be through secured loans or to pay off the debt to get out of the file.
These conditions may be more or less strict, i.e. annual income must be more or less high depending on the entity or type of credit, and there may also be additional requirements for contracting financing.
Documents needed to get funding
In the case of loans that are applied for in the name of a legal entity (a company), the documentation that lenders will ask for will be different. The entities will ask us for certain documentation that shows how our business is financially:
- VAT return from the previous year and the current year.
- Income tax return.
- Bank statement (if in another bank).
- Updated balance sheet of the company’s turnover.
- Proof of payment of Corporate Tax.
Depending on the entity, the delivery of these documents may be online or in person, although more and more entities allow sending the documentation through a courier. Likewise, more documentation can be requested in accordance with the analysis and risk policies of each lender.
Other forms of financing for companies
1. Business credit lines
Unlike loans, lines of credit give us an amount we can freely dispose of, paying only the interest on the principal we have used. This financial tool is very common among companies. In this way, we can have a reserve fund in case we need financing at times when we do not have working capital.
The ICO credit lines were created to promote the financing of companies by the banks, since, during the years of recession, these decreased the concessions considerably, although currently with the improvement of the economic situation the ICO lines are gradually disappearing.
It is a new form of financing for the self-employed and SMEs by which we can pay the invoices of one or more suppliers later. In this way it will be the lender who pays our supplier and we will pay the lender either in full later or in monthly installments the amount of the supplier’s invoices along with the interest generated.
3. P2B or crowdlending loans
In this case it will be private investors who decide whether to invest in our project or not. The amount that we can obtain depends on the crowdlending platform we go to, although it is usually around 100,000 euros. The term in which we will pay the credit also depends on the company we go to and the amount of our application.
It is exactly the opposite of factoring, that is, if we are suppliers we can, through this product of financing for companies, collect an order before delivering it in order to have liquidity and, once we collect the order when delivering it, we will return the money that the lending institution advanced to us.
5. Loans with mortgage guarantee
These products offer us financing for our company if we have a property that we can use as a guarantee of payment. In the case of loans with mortgage guarantee for businesses, we can obtain a maximum percentage amount of the appraisal value of the property that we deposit as a guarantee. The time of analysis and granting of these loans is longer than the previous ones due to the appraisal processes involved.
Products to invest in our company
1. Equity crowdfunding
They are platforms that have become popular in recent years thanks to the advance of new technologies. These types of platforms allow private investors and professionals to invest in our project. In return, these investors will get a share of our company and will get profits according to the benefits of our business. This is a way to obtain economic resources without having to go into debt.
2. Business Angels
Similar to equity crowdfunding, but with the difference that it is the managers of the Business Angels who decide as a group where they will invest and not each investor on a personal basis. This type of income generation for the company usually occurs in large projects and we must take into account that these investors will be part of our company.
3. 3F (Friends, Family, Fools)
In its English acronym, the 3 F’s (Friends, Family & Fools) could be translated as Family, Friends and Fools who help us invest in our business. The conditions of each investment will be agreed upon in a particular way with each one.
4. Issuance of debt
This is a measure to which more and more companies are resorting. With this method the company issues securities that would be equivalent to a piece of a loan with a return that will be given when it is “repurchased” at the end of the agreed term. This is known as fixed income investment and can be issued through banks or, if the company is large enough, through the stock market.
Aid for the financing of companies
1. Capitalization of unemployment
This alternative is only possible for self-employed people who want to start a business and consists of collecting all the unemployment benefit that we are entitled to if we use the capital to create a new company.
2. Subsidies: European, national, regional or local
There is a lot of government support to start or grow the business. On the website Portal Pyme of the Ministry of Industry, Trade and Tourism they have a list of all current aid for companies.
These are platforms that help companies and entrepreneurs to find sponsors interested in our project. With this type of funding for companies, we will be able to publish our projects for sponsors to invest in. In exchange, we will reward the collaboration with a symbolic gift, which is usually greater the more money they contribute.
About this page and our methodology
What is this page for: on this page we explain the different types of loans for companies that are available on the market, which entities and platforms can offer us financing and what we have to do to obtain liquidity without overpaying.
Source: the information obtained about the new providers of loans for companies has been obtained from the online portal of the Spanish Confederation of Small and Medium Enterprises (CEPYME).
Methodology: all the information about the financing products has been collected through online research and mystery shopping.
About FUNDGECKO: this online financial comparator aims to provide relevant information on personal finance. Through this website all users can, free of charge and without any obligation, compare and choose between the best current financial products, know all the significant information to be able to contract the product that best suits their economic situation in a responsible and informed way.
Warning: the services we offer are totally free for all users. FUNDGECKO obtains its income from advertising and its featured products.