Zoom on the financing of companies in difficulty

The financing of a company is a necessary step to its launch, but also to its development and, of course, indispensable during difficulties.

However, if it is sometimes difficult to obtain financing in good times, then what about fundraising when the company encounters financial difficulties.

Whether it is a temporary drop in activity showing an urgent need for cash, or structural difficulties requiring a reversal accompanied by an investment plan to revive the activity, we explore in this article all solutions at your disposal to find financing for a company in difficulty.

What can banks do for companies in difficulty?

What can banks do for companies in difficulty?

Loan for companies in difficulty

If one thinks of bank loan as a means of financing, this solution can be extremely difficult to obtain when the company goes bad.

Of course, this will depend on the nature of the difficulties faced by the company, but generally banks only grant a loan if the company is able to repay it through a positive and sufficient cash generation, which is rarely the case. cases of companies in difficulty.

It should be noted, however, that in some cases a loan may be considered, particularly in the context of a restructuring or investment plan, but this generally requires a significant cash injection by the shareholders.

Another solution may be to implement an existing debt management, for example by extending the maturity (ie duration) of existing financing. This type of transaction can be carried out as part of a credit redemption or simply a contractual renegotiation with the bank.

This is a solution that can be attractive when the company is cash generating at the operational level, but the excess cash is insufficient to cover both investment needs and loan repayments.

Other solutions offered by banks to deal with an urgent cash need

If you could not get a loan for your company in difficulty, know that many alternative solutions offered by banks exist.

If the cash flow requirement is temporary, for example due to a late payment or other problem of Working Capital Requirement (WCR), but the company is doing rather well, then it may be possible to cash or overdraft authorization.

Discounting or financing by Dailly credit of a portion of the receivables can also be considered in order to quickly release cash.

Alternatives to banks to finance a company in difficulty

Alternatives to banks to finance a company in difficulty

Optimize the BFR

Optimize WCR, which corresponds to the cash held up by cash offsets (delays between the purchase, the eventual production, and the sale of goods, delays between the sale and settlement of customers, delays between purchases and payment of suppliers), can be an effective way to get your head out of the water, if you have a cash flow problem rather than a profitability problem.

In the short term, this can generate cash, often in return for lower profitability, and in the medium-long term to grow less resource-intensive (unless you have a negative BFR of course).

Optimizing the BFR will allow you to free up cash. For that, do not hesitate to play on several boards and to cumulate the means of optimization:

  • Destock to lower the amount of your stocks, possibly by granting discounts
  • Reevaluate your stock management policy in the medium term: maybe you have to order less cheaply, even if you have to pay a little bit more or miss a few sales, rather than having immobilized cash and unsold inventory on your hands
  • Renegotiate your supplier delays to obtain longer payment terms that will allow you to reduce the pressure on cash flow
  • Renegotiate your customer deadlines, possibly offering a discount for a fast payment. By reducing them, you’ll get cash back faster

Approach investors to make a capital increase

Looking for investors to carry out a capital increase can be a good solution when the resolution of the difficulties requires a major restructuring (commercial repositioning, investments, downsizing).

The capital increase raises funds that can help you improve the financial position of the company, whether by allocating them to WCR, cash or using them to repay loans or receivables.

You can then turn to 3 types of actors:

  • Private investors, current partners in the first place, business angels, etc.
  • Funds specialized in business turnarounds, which can generally bring you operational expertise in addition to financial support
  • Your customers, via the crowdfunding platforms, this is the solution used by the Jeannette biscuit factory and the Atelières cooperative

Lower the costs

Although easier said than done, reducing costs is an effective way to restore a positive cash flow over the medium term.

For this you can activate several levers. In the first place, you can list all the items of expenditure and eliminate the superfluous.

The exact nature of the positions to be reduced will depend on your activity, but here are some ideas:

  • Do you really need journal subscriptions that you put in the waiting room?
  • Do your customers expect you to take them to a restaurant or can you just have a coffee at your premises?
  • Who is in charge of the purchases? Are these centralized? Are the costs optimized?
  • Try to zero paper, or at least install a double-sided printing policy and delete personal printers. If you have to move to print, the print consumption drops. Print in black and white rather than in color.
  • Do you have unused software licenses?
  • Can you reduce your travel costs? Take public transport rather than the car or taxi. Make your executive travel in second rather than first class. Make videoconferencing a priority rather than traveling.
  • Can you replace your phone lines with VoIP (Skype for Business or equivalent)?
  • Are the portions served to customers in your restaurant too generous (do you throw a lot)?
  • Can the amount of packaging used for distribution be reduced?
  • Can you move to a cheaper location? Or sublet some of your premises?
  • Empower your employees on energy savings: no windows open if the air conditioning or heating works. Install motion detectors for lighting that works only when needed.
  • Etc.

Sell ​​assets

Another solution, more radical, sell assets!

It is indeed not trivial to get rid of certain elements, sometimes useful to the proper functioning of the company. Nevertheless, the sale of certain assets can help to give a little breath without penalizing the activity, provided we press the provisions for.

Thus, for example, vehicles can be sold, which makes it possible to free up cash in the short term, even if it is possible to take them back for rent so that the company continues to operate normally.

Similarly, if you own your premises, you can sell them and rent them again later.

If your business is larger, you can also consider selling a subsidiary or division.

The business plan, a prerequisite for finding financing for a company in difficulty

The business plan, a prerequisite for finding financing for a company in difficulty

When a company encounters financial difficulties it is essential to set up a business plan in order to be able to estimate the evolution of the cash flow of the company over the coming months and accurately quantify the need for financing to be filled.

If you choose to seek new investors, in the context of a capital increase in particular, it will also allow you to explain in a reasoned manner the origin of the difficulties and the plan that you intend to put in place to remedy it.

It is important to be honest with potential investors and not try to minimize or hide the extent of your difficulties, the franchise can only serve your cause.

If you do not know how to make a business plan or want to verify that your document corresponds to what investors expect, you can consult our business plan guide or try our business plan software.

Is there any help for companies experiencing temporary cash flow difficulties?

Is there any help for companies experiencing temporary cash flow difficulties?

There are many public supports for companies in difficulty. In fact, companies that have difficulty meeting their financial deadlines, or whose development prospects are uncertain, can benefit from state and / or local government support, subject to commitments.

Depending on the case, a company in difficulty may then benefit from relief measures (payment deadlines), exemptions from taxes or duties, or reduction of rights, or even an acquisition of a stake in the capital of the company. business.

Local authorities can grant aid in the form of exemption from taxes, direct aids or guarantees (suretyship).

To benefit from aid for companies in difficulty, you will have to call on one or more of the business support committees:

  • The Commission of the Chiefs of Financial Services (CCSF): it allows to obtain delays of payment for certain fiscal and social debts.
  • The Departmental Committee for the Review of Corporate Financing Problems (Codefi): it can seek financial solutions for companies in difficulty of less than 400 employees with a view to their recovery or restructuring, proposing the realization and financing of an audit or grant loans. This aid can also be used to finance a social plan.
  • The Interministerial Committee for Industrial Restructuring (CIRI): it offers assistance to ensure the sustainability or reconversion of companies with more than 400 employees who face structural difficulties.

Some grants and subsidies reserved for business takeovers also concern the takeover of companies in difficulty, such as the NACRE (New Support for Business Returnees) scheme, which provides personalized assistance but also zero-interest loans ranging from 1 000 and 8000 euros.

BPI France also offers several financing schemes for the takeover of companies, including:

  • the transmission guarantee which guarantees up to 50 (70% if the region intervenes) of the loan contracted for the takeover of a business
  • or the development contract transmission, a loan granted for SME takeover operations, without guarantee or personal guarantee, ranging from € 40,000 to € 400,000, for a maximum of 7 years with repayment relief the first 2 years. The takeover of a company in difficulty allows in addition to benefit from a system of exemption from corporation tax (IS) and local taxes (CFE).

Finally, help is also available, as part of a business takeover by employees.

Our guide to financing companies in difficulty is coming to an end. We hope you have been useful, do not hesitate to send us your comments or questions in the comments.

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