Do you have a business project and are you looking for financing? Are you a business owner looking for funds for your company? Before turning to banks and other credit organisations, don't forget that you can call upon private individuals (close or not so close) who are sometimes prepared to intervene financially in your company...
To finance a professional project, we quickly think about asking our bank, but we often forget that the first potential financiers are... your relatives, or other people who believe in your project and want to invest their money. This last category includes "Business Angels".
Here are the three possibilities available to you in terms of financing by individuals, each with their characteristics and advantages, particularly in terms of taxation.
Financing by relatives
The financing of your activity by relatives, whether in the form of a donation, capital (for a company) or a loan, is an avenue to be seriously considered. Why ask strangers to finance your project when friends or family members are probably willing to help you? However, when it comes to closing the deal, it is important to put down all the terms and conditions on paper, even if (especially if!) it is someone you know well.
For example, for a loan, it will be important to indicate the interest rate, the exact repayment period, what will happen if the company goes bankrupt, etc. The same applies to capital, as it is essential that everything is clear and transparent between the parties, especially with regard to a future withdrawal of capital by the financer. How much will their shares be worth at that time? Who can buy back the shares available on the market? It is better to set all this in stone beforehand to avoid trouble later on (and to avoid falling out with someone close to you).
You should know that since the end of 2020, there has been a real incentive for (Brussels) individuals who lend money to a (Brussels) company: the Proxi loan!
By granting this loan, the individual lender can enjoy a tax benefit in the form of an annual tax credit. If applicable, and under certain conditions, they can also receive a one-time tax credit if, for example, the financed company goes bankrupt.
Here are some of the features of this loan:
- duration: 5 or 8 years
- interest rate: minimum 0.75% and maximum 1.50%
- tax benefit for the lender: one-time tax credit of 30%
The full features of the Proxi loan and the conditions for obtaining it can be found on the finance&invest.brussels website.
In addition, the registration of Proxi loans and the maintenance of the Register of these loans have been entrusted to the Brussels Guarantee Fund, which is managed by finance&invest.brussels. This allows both the financed company and the lender to avoid administrative hassles!
Crowdfunding is a collective financing method that allows multiple investors to finance or support a particular private project, mainly through an automated web platform and social networks.
The funding can take three different forms:
1. Donations or rewards
The company, association or individual can receive an unconditional donation or a contribution that can lead to compensation in kind (CD, product, tickets for shows, etc.). This is the simplest form of crowdfunding.
2. Investment (Equity)
This involves an investor who will acquire equity or debt securities issued by the supported company.
In the latter case, crowdfunding can be an interesting solution, especially for projects:
- that do not require a significant capital supplement (need limited to a few thousand or tens of thousands of euros)
- that, despite their own interests, do not have sufficiently innovative characteristics or sufficiently high growth potential to interest business angels
- where the project owner does not want to have one (or more) co-investor(s) holding a significant percentage of the company's capital and wanting or likely to want to be involved in its management
It is therefore a complementary and/or alternative solution to other existing sources of financing, whether in relation to business angels, the entrepreneur's own contribution or bank loans. Successful crowdfunding is also a real asset for obtaining other financing, since on the one hand, as a project owner you increase your own funds and, on the other hand, you are able to show the public's interest in your project and thus objectify the presence of a market.
3. Loans (crowdlending)
This involves a lender who will provide a loan on a fee basis to the company, association or individual wanting to carry out a project.
With this system, the financer will also be able to benefit from the Proxi loan, under the conditions already mentioned above. Crowdfunding platforms (such as Look & Fin, Ecco Nova or Winwinner) take care of the administrative management of the lenders' files (including the registration of the lenders with finance&invest.brussels), which makes life easier for the companies that use crowdlending and their financiers.
Also read the article about Proxi loans in the context of crowdlending: https://1819.brussels/blog/pret-proxi-investir-epargne-dans-entreprises-bruxelloises
Here's how it works in practice (for all three types of crowdfunding):
- the project leaders present their project on the platform of their choice and indicate their needs
- the platform managers analyse and sort the submitted projects
- the (selected) projects are presented to the public, again through the platform
- potential investors who are attracted by a project finance it at the desired level, taking into account the precise terms and conditions linked to the platform and the selected project.
Currently, around 20 platforms are active in Belgium. They have different ways of working and different objectives. It is therefore important to make the right choice, depending on the type of financing you are seeking and your sector. Here are some examples of platforms: Crowdin, Growfunding, Gingo (only in the form of a donation), Kickstarter, KissKissBankBank, Miimosa, Ulule, Bolero, BeeBonds, Ecco Nova, Look&Fin, Spreds, WinWinner and Lita.co.
These are private investors (individuals) who personally invest in the capital of unlisted companies (private equity).
Business Angels, most of whom are entrepreneurs themselves, are generally involved in the projects in which they invest, by coaching the companies, giving them the benefit of their skills, experience, time, networks, etc.
The projects most likely to interest them are those that offer innovative solutions with significant growth potential.
They invest in such projects alone or with others, in addition to the entrepreneur's own contribution, and most often in the launch or development phase of the project.
A Business Angel's average "ticket" in a project, i.e. the level of their investment, will generally be around €50,000.
Business Angels networks
Without it being an obligation, many Business Angels choose to operate through a Business Angels network.
Such a network can be defined as an organisation that brings together potential investors and project leaders seeking financing.
This type of network has various advantages, both for the investor and for the financed company:
- a structured way of bringing together supply and demand
- a recurring source of innovative projects to be funded
- the projects initially introduced are challenged and sorted so that only the most credible are retained
- this type of operation guarantees a certain level of transparency, from the project owner to the Business Angel and vice versa
There are various Business Angels networks in Belgium.
The two main and/or most "institutional" networks are Be Angels, active in Brussels and Wallonia, and Ban Flanders (Business Angels Network Flanders), active in Flanders.
The Be Angels network is supported by the Brussels-Capital Region and the Walloon Region, among others. It has over 180 members.
Be Angels has two main missions: firstly, the development of activities that promote support and financing by Business Angels and secondly, the promotion of the entrepreneurial mindset.
Once a month, the investors receive a list of the selected projects with a complete and anonymous description of each one.
Tax Shelter start-up/scale-up
Citizens can receive a tax incentive to help small start-ups. If all the conditions are met, citizens can receive a tax reduction of 30% or 45% of the amount invested in one of the companies concerned.
Start-up companies may have difficulties in raising capital. The goal is to raise private capital to provide venture capital for small, unlisted companies suffering from a financing gap.
It should be noted that a tax reduction of25% also exists for investments in a small growing company (scale-up). The investment must be made in a capital increase carried out from the fifth to the tenth year since the company's incorporation.
The maximum amounts that start-ups and scale-ups can raise under the Tax Shelter are doubled:
- 500,000 euros for start-ups.
- 1,000,000 euros for scale-ups.
More information on the FPS Finance website.