Do you have a plan, an idea, a burning desire to strike out on a new professional adventure or build your business? You may have the drive, but getting your hands on the cash is often a gruelling process. Fortunately, Luxembourg is a favourable environment for start-ups, and there are many ways to secure funding for them. myLIFE has whipped up a shortlist of potential financing solutions for your business.
Borrow from a bank
After making your way through your company’s internal resources (your equity capital, that is), your list of potential partners and patrons, and even your friends and relatives, you still have many resources at your disposal. Besides business angels and other venture capitalists, the obvious answer to funding your start-up is to turn to a lending institution. If your plan holds water, your pitch is convincing and you can offer the bank appropriate collateral, you should be able to access several types of financing (investment loans, leasing arrangements, overdraft facilities, etc.) suited to the needs of businesses.
Contact the SNCI
Another option is to reach out to the SNCI, the Société Nationale de Crédit et d’Investissement (National Credit and Investment Society). This “public-law banking institution specialised in medium and long-term financing of Luxembourg based companies” grants loans for start-ups and business transfers, investment, innovation and exports. On average, this financing covers 25% of industrial project costs, but may cover up to 75% of eligible investments in the case of an equipment loan for craftsmen, tradesmen, and hotel and restaurant owners setting up their first business. Take time to read through the many financing options they have to offer.
Assistance getting a loan
- The MC (Mutualité de Cautionnement). Don’t have enough collateral to satisfy the bank? You can apply for assistance from the Mutualité de Cautionnement. This organisation’s mission is to make it easier to access bank financing. To do so, it serves as a guarantor with the bank for companies holding business permits.
- The MPME (Mutualité des PME). The MPME supports Luxembourg SMEs, primarily by acting as a financial partner in the provision of sureties for all or part of their project financing.
- The InnovFin Guarantee Facility. If your SME is active in the innovation sector, don’t hesitate to apply for the InnovFin Guarantee Facility, established by the European Investment Bank (EIB) through the European Investment Fund (EIF). This guarantee facility enables financial intermediaries like Luxembourg banks to grant companies eligible under InnovFin loans that are 50% guaranteed by the EIF. This means banks take on less risk, and can approve loans of between €25,000 and €7,500,000.
Alternatives to bank loans
- Business angels. Don’t forget about business angels when getting your company off the ground. They become involved right from the start, and generally choose to fund young, innovative businesses. In addition to providing between 10% and 30% of your capital, they can give you the benefit of their experience and network of contacts. You can count on a business angel (if you let them in on the accounts)!
- Venture capitalists. If your company is showing promising signs of growth and you want financing to help it expand quickly, a venture capitalist (VC) might be the right choice for you. In exchange for shares, and often a seat on the board of directors as well, a VC can contribute a tidy sum to give your business a boost.
Declined for a loan? Don’t despair; there are alternatives. If you have little or no capital yourself, you can turn to microfinance institutions.
- Microfinance institutions. Declined for a loan? Don’t despair. If you have little or no capital yourself, you can turn to microfinance institutions, which grant micro-loans up to €25,000. Find out more from the Maison de la microfinance (house of microfinance), managed by ADA, or go directly to Microlux.
- Crowdfunding. Crowdfunding is another (now very popular) financing solution. It works by bringing together a large number of people through an online platform to finance a project or start-up. The people making financial contributions to invest in your business may be compensated with a stake in the company, but this isn’t the only option. Crowdfunding can also be based on compensation in kind. In this case, in exchange for their financial support, private investors receive the product or service in question once it has been developed, sometimes at a discount.
Reaching out to an investment fund is another way to grow your company. The SNCI (Société Nationale de Crédit et d’Investissement) and the EIF (European Investment Fund) have jointly established the Luxembourg Future Fund. With a volume of €150 million, this fund invests directly and indirectly in innovative SMEs in the start-up, development and growth phases.
The Digital Tech Fund is a seed fund for start-ups in the field of ICT. Created by the Luxembourg government and seven private investors (including BIL), it provides financial support for budding firms in the launch phase.
The Ministry of the Economy in Luxembourg offers a range of grants for start-ups and established SMEs, which are provided for by law (aides de la loi-cadre classes moyennes). These grants can be a great help to entrepreneurs, whether they’re in industry, commerce, construction or services. The state aid scheme was reformed in Luxembourg in 2018. Changes were made and new forms of aid were introduced.
As a final tip on our tour of the financing landscape, don’t forget Luxembourg’s efforts to create a welcoming community for start-ups. Many institutions have been established to guide new business creators and help them access financing (Innohub, LHoFT, Luxinnovation, Nyuko, Technoport, Paul Wurth InCub). Events are organised for promising new companies, especially in the field of new technologies. These include Fit4Start, Pitch your Startup and Startup World Cup Luxembourg to name a few. Most of these events are really competitions allowing participants to secure subsidies and meet potential investors. They are yet another way to find funding for your company and bring your plans to fruition. Don’t miss out!