What forms of capital do we often encounter?
The type of capital a company needs depends very much on the type of business and the stage they are in. In general, loans, equity and convertible loans are the most common.
Loans
A loan appears on a company's balance sheet as debt capital. Most loans are provided by banks. The amount must be repaid within a certain period of time, and as an entrepreneur, you pay interest on the money you borrow. So the amount you have to repay is ultimately higher than the amount you borrow.
Banks want assurance that they will get back their investment. That's why banks often hold entrepreneurs personally liable. For example, they must put up their house as collateral. If things then go wrong with the business, the bank can sell the house and thus recover their investment.
For companies in the startup phase, getting a loan is often difficult. There are simply too many uncertainties, so a bank often does not have the confidence to see their money back.
Not even at NOM. Or is it?
In a nutshell, NOM does not originate loans like the bank does. This form of capital does not fit the stage at which we usually enter. The time-to-market is often still too long, so an entrepreneur usually has to start repaying before he books sales. This creates pressure on cash flow, which is negative for business growth.
We do provide subordinated loans. These are loans where we do not ask for guarantees. We show that we have confidence in the company, which also sends an important signal to banks. With a subordinated loan we take a risk, but we also strengthen the company's guarantee position.
Sometimes we get a call from a bank. They have an application for a € 500,000 loan, but see that the company can only guarantee € 350,000. We then step in with a subordinated loan of € 150,000, so that the entrepreneur can continue to grow. I expect this working method to increase in the future.
Shares
Another way to get capital is to sell some of the company's shares. In this way, you trade a piece of control of your company for capital to continue growing. This has advantages and disadvantages.
The advantage is that you are not liable for losses greater than the capital you have paid into the company. In addition, you share the risks of an investment with the co-shareholder. On the other hand, you do have to share profits with the other shareholders. The biggest disadvantage that many entrepreneurs experience is the fact that they lose some of the control over their company. Usually the fact that they get capital to continue growing outweighs this.