Non-dilutive Financing: Debt vs Grant
We regularly meet CEOs who tell us that they are only looking for subsidies, absolutely no debt!!
So it is time to open the debate: is SUBSIDY always more favorable than DEBT?
> Debt: monthly repayment + interest rate > 4%
> Grant: no refund.
The subsidy seems more interesting…
And yet, the sub:
- The sub is always paid in several installments (from 2 to 4 or 5 installments on amounts >2M).
- Before receiving each new installment, it is necessary to justify the expenses of the previous one: present the invoices which correspond to the program validated during the request for sub => without justification of a use in accordance with that decided during the allocation (sometimes 24 months in advance), not only will the company probably not receive the next installments but it also risks having to reimburse the amounts which it cannot justify.
- The amounts received in sub are deducted from your CIR/CII for the year in question (= if you were eligible for 100k of CIR and you received 150k of sub in the year, you will not receive any CIR).
- Last but not least: the grants are awarded drop by drop, often after a strict selection and success in a competition (such as the I-Nov or I-Lab competitions) for which preparation is long and success rates are low (15% on average for I-Nov for example).
Whereas, the debt:
- The debt is paid in one go, at the start: all the cash in your account, which allows you to have real visibility on your cash flow and therefore to put yourself in battle order calmly (recruit staff with visibility for example).
- You will not need to justify expenses after using the cash. This is called unallocated debt. The idea is of course to stick as closely as possible to the plan but you are free to spend the money as you see fit depending on how your needs evolve over the repayment period (8 years).
- Financial tools dedicated to innovative companies have a repayment deferral of 2 or 3 years (this is the case for loans granted by Bpifrance innovation for example), which gives you plenty of time to start generating cash before starting to repay.
- The amounts raised in debt are not deducted from your CIR/CII, they are perfectly cumulative.
The best roadmap for a large majority of startups is:
- To maximize debt immediately after your fundraising (when you are at your most attractive), to secure your runway.
- To try within 12/18 months following a competition or call for projects (#France2030) which corresponds to your situation to try to accelerate your development and boost your visibility.
Of course, it is up to you, CEO, to determine the solution that seems most relevant to you. But know that we will always be there to help you make the right decision and that there is only one opportunity to draw up the ideal financing roadmap.
Obviously in some cases the grant is more appropriate, particularly if you have very clearly earmarked expenses for the coming months (for example, a partnership contract with a research lab for the next 18 months).
If you still don't get it, contact us.
Our teams are here to support you on the subject.
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