Business Financing: Methods, Sources, and How to Obtain It

How to Get Business Financing?

Are you planning to start, expand, or modernize your existing business? Or have you encountered unexpected challenges and suddenly need working capital? In such situations, business financing can help. It is an excellent way to respond quickly and solve emerging challenges, obtain the working capital you need, launch a new business that requires initial investment, or grow an existing one. It is also a great opportunity to modernize your business, upgrade the equipment used in your operations, and improve your technologies. Business financing can be either repayable or non-repayable. But let's start from the beginning.

What Is Business Financing?

Business financing is a loan, grant, or other form of financial assistance provided to a specific business entity. Grants are usually allocated for a particular purpose (for example, one of the European Union support schemes encourages the implementation of renewable energy sources for business needs and may finance the installation of solar power plants), while loans or other financial assistance (from entrepreneurs or investors) often have no specific purpose and can be used much more broadly. Business financing is a way to grow, modernize, expand, and cover existing or day-to-day financial obligations more quickly and efficiently. It can also serve as a strong incentive to start a new business, turn your vision into reality, and achieve your goals.

Types of Business Financing

Modern businesses can take advantage of various financing sources. Some choose to invest their own funds, while others use financing provided by banks, credit unions, crowdfunding platforms, as well as government and EU support schemes. The best solution depends on the size of the business, its stage of development, financial position, and planned investments.

Equity Financing

Equity financing means funding a business using the personal funds of the company's owners or shareholders. This method is typically chosen when starting a new business or implementing smaller-scale projects in order to avoid borrowing. Equity financing is generally suitable for launching a business, making small investments, or testing pilot projects. Although this option provides the greatest level of freedom, it also involves the highest level of personal financial risk.

Advantages:

• No interest payments;
• No additional financial obligations;
• All business decisions remain in the hands of the owners.

Disadvantages:

• Limited investment opportunities;
• Greater personal financial risk;
• Insufficient funds for faster business expansion.

Bank Loan for Business

A bank loan is one of the most popular business financing solutions. The funds obtained may be used for working capital, investments, purchasing equipment or real estate, business expansion, and other company needs. Bank loans are usually granted to established businesses that generate stable income, have a good credit history, and can demonstrate their ability to repay the loan. When evaluating an application, banks typically analyze the company's financial statements, income, existing financial obligations, credit history, business plan, and other relevant information. The more stable the company's financial position, the greater the likelihood of obtaining more favorable financing terms.

Advantages:

• Possibility to borrow larger amounts;
• Longer repayment periods;
• Suitable for larger investment projects, equipment purchases, real estate acquisition, and business expansion.

Disadvantages:

• The application assessment process may take longer;
• It is more difficult for newly established businesses to obtain financing;
• Loan obligations must be met even if the business experiences a temporary decline in revenue.

Credit Unions

Credit unions also offer a variety of business financing solutions. They generally focus on small and medium-sized enterprises, which means they may, in certain cases, provide more flexible lending conditions than commercial banks. This financing option is particularly suitable for small and medium-sized businesses, companies operating in regional areas, or situations where obtaining a bank loan is more difficult. The financing terms offered by credit unions may vary depending on the specific credit union, the nature of the business, the purpose of the loan, and the results of the creditworthiness and risk assessment.

Advantages:

• More flexible application assessment;
• Opportunity to obtain financing for smaller projects;
• In some cases, decisions are made faster than by commercial banks.

Disadvantages:

• Loan amounts are not always as high as those offered by banks;
• Membership in the credit union may be required.

Crowdfunding

Crowdfunding is a financing method in which the funds required by a business are provided by a large number of investors through specialised platforms. In Lithuania, this model is particularly widespread in the financing of real estate development projects, but it can also be applied to other business needs. Crowdfunding is usually chosen when it is important for a business to obtain funds quickly, when more flexible financing conditions are required, or when a bank loan is not a suitable option. The financing received may be used to implement projects, provide working capital, refinance existing obligations, or expand the business. However, each crowdfunding platform sets its own project selection, risk assessment, and financing conditions.

Advantages:

• Faster financing process;
• More flexible financing conditions;
• Various business projects can be financed.

Disadvantages:

• Additional platform requirements may apply;
• Not all projects raise the required financing amount.

Government and EU Support for Businesses

Government and European Union support is one of the most attractive business financing options, as it can help cover part of the costs of starting, expanding, or investing in a business. In Lithuania, various support programmes are administered by ILTE, the Innovation Agency Lithuania, the Environmental Project Management Agency, the National Paying Agency, the Employment Service, municipalities, and other institutions. Different support measures are designed for different business needs, ranging from starting a business and introducing innovations to expanding exports or improving energy efficiency. Government and EU support can be divided into repayable and non-repayable support.

Non-Repayable Support

This is financing that does not have to be repaid, provided that the project is implemented in accordance with the established conditions. Usually, not the entire value of the project is financed, but only part of the eligible costs, meaning that the business must cover part of the investment using its own funds. Non-repayable support may be granted for business digitalisation, the introduction of innovations, research and experimental development, improvements in energy efficiency, renewable energy projects, strengthening employee competencies, and similar purposes. Each support measure has its own requirements and financing conditions.

Repayable Support

These are government-supported financing measures that the business must repay at a later date. They usually include preferential loans, government guarantees, or other solutions that help businesses obtain the financing they need more easily. Repayable support is most often chosen when a business requires larger investments but finds it difficult to obtain a standard bank loan or wishes to benefit from more favourable conditions. Government and EU support for businesses may be provided through various financing programmes and institutions.

EU Support for Businesses

The European Union finances various programmes intended for both start-ups and established businesses. Support is most often granted to projects related to innovation, digitalisation, research and experimental development, improving energy efficiency, the green transition, export development, or strengthening employee competencies.

EU support may be of two types:

• Direct funding. It is administered by European Union institutions or their agencies. This type of financing is usually intended for international projects, research, innovation, and cooperation initiatives. Applications are submitted directly to EU institutions.
• Indirect funding. It is administered by national institutions. In Lithuania, these include ILTE, the Innovation Agency Lithuania, the Environmental Project Management Agency, the National Paying Agency, and other institutions. Through these institutions, businesses may apply for most EU financing measures available in Lithuania.

Municipal Support for Businesses

Many Lithuanian municipalities run separate support programmes for small and medium-sized businesses. These programmes aim to encourage the establishment of new businesses, help existing companies expand, or compensate for part of the costs related to business activities. Specific financing opportunities depend on the municipality. Municipalities may compensate for the costs of establishing a company, advertising, creating a website, purchasing equipment, training employees, participating in exhibitions, or other expenses. As each municipality applies different financing conditions, the types of expenses that may be reimbursed and the maximum available support amounts also vary.

Support for Businesses from the Ministry of Agriculture of the Republic of Lithuania

Agriculture is an extremely broad field that requires significant investment. Establishing a new and efficient farm and purchasing the necessary tools and machinery requires substantial financial resources. The Ministry of Agriculture of the Republic of Lithuania is interested in encouraging the establishment of new businesses in rural areas and thereby improving the economic situation of smaller municipalities and local administrative areas. For this reason, the Ministry of Agriculture of the Republic of Lithuania provides support to both newly established and existing businesses.

Government support for businesses encourages micro and small enterprises in rural areas to grow and expand. It promotes the economic activities of farmers and other natural persons, including various agricultural and non-agricultural businesses, the production, handling, processing, and sale of products, as well as the provision of various services.

Currently, the Ministry of Agriculture of the Republic of Lithuania offers four support packages:

• Support for the establishment of young farmers;
• Support for starting economic activities in rural areas;
• Support for small farms;
• Support for investments in the creation and development of non-agricultural activities.

Government Support for Sole Proprietors

Government support for sole proprietors can make it much easier to start a business and reduce the financial burden associated with launching a new activity.

Individuals who establish a job for themselves for the first time in a very small company that they have founded may receive a self-employment subsidy. This subsidy can be obtained through the Employment Service after preparing an individual employment activity plan that includes the self-employment support measure.

This support is available to:

• People of working age with severe disabilities or a working capacity of up to 25%;
• Unemployed people of working age with disabilities whose working capacity is assessed at 30–40% or who have a moderate level of disability;
• Unemployed individuals under the age of 29.

To benefit from this support, an application must be submitted. During the evaluation process, particular attention is given to applicants who intend to carry out self-employment activities in rural areas or locations with high unemployment rates.

Applications are also assessed based on the applicant's own financial contribution, the amount of funding requested, the planned business activity, the number of jobs to be created, the applicant's work experience, and qualifications.

More information about government support for sole proprietors is available on the website of the Employment Service.

Support for New Businesses

Start-up entrepreneurs may benefit from financing measures offered by the government, the European Union, and municipalities. These measures can help cover part of the costs of establishing a business, purchasing the necessary equipment, creating jobs, or making initial investments.

Support for new businesses is usually provided through specific funding calls, meaning that financing opportunities depend on the programmes available at the time.

When evaluating applications, institutions typically take into account the business plan, the feasibility and sustainability of the project, the planned business activity, the applicant's own financial contribution, job creation, and other established criteria.

Government and EU support for businesses offers both advantages and disadvantages.

Advantages:

• Possibility to receive non-repayable funding and reduce investment costs;
• Financing is available for a wide range of areas, including innovation, digitalisation, export development, and more;
• Some funding measures make it possible to finance large-scale projects that would be difficult to implement using only the company's own funds.

Disadvantages:

• Not all businesses or projects meet the eligibility requirements;
• The evaluation of applications and decision-making process may take anywhere from several weeks to several months;
• In most cases, only part of the project costs is financed, meaning that the applicant must still contribute their own funds.

Business Financing Through Profitus

One of the available business financing options is a business loan. Profitus business loans, designed for the growth of small and medium-sized enterprises, provide an easy and fast way to borrow without unnecessary bureaucracy or hassle.

A business loan is an opportunity to grow your business idea more quickly and efficiently. It can be used to cover day-to-day business expenses, support business expansion, purchase equipment, essential goods or services, and meet existing financial obligations. A business loan may also be used to refinance existing liabilities.

You can receive a loan offer of up to EUR 5,000,000 very quickly, with annual interest rates starting from 6%.

Loans are available for:

• Real estate development projects;
• Business expansion;
• Renovation projects;
• Day-to-day business expenses;
• Purchasing essential goods, services, or equipment;Covering tax obligations;
• Rental projects;
• Completing real estate development projects;
• And other business financing needs.

How to Get Business Financing?

Although each financing method has its own specific requirements, the overall financing process is generally very similar:

1. Assess Why You Need Financing. First, determine the purpose of the financing. Additional funds may be needed to start a business, purchase equipment, finance a real estate project, expand operations, develop new products, or for other business purposes. Clearly defining the purpose of the financing will make it easier to choose the most suitable financing source.

2. Choose the Right Financing Method. Evaluate which financing source best meets your needs. If only a relatively small amount is needed to start your business, your own funds may be sufficient. Larger investments are more commonly financed through bank loans, credit unions, crowdfunding platforms, or government and EU financing programmes.

3. Prepare the Required Documents. Depending on the chosen financing method, you may need to submit:

A business plan;

Financial statements;

Bank account statements;

Information about the planned project;

Other supporting documents.

The more accurate and comprehensive the information provided, the smoother the application assessment process will be.

4. Submit Your Application. Once all required documents have been prepared, submit your application to your chosen lender or the institution administering the financing programme.

5. Wait for the Decision and Sign the Agreement. The financing provider evaluates the submitted information, the company's financial position, the feasibility of the project, and the potential risks. If the application is approved, a financing agreement is signed, setting out the financing terms, repayment conditions, deadlines, and the obligations of both parties.

6. Use the Funds for Their Intended Purpose. Once financing has been received, the funds must be used in accordance with the purpose specified in the financing agreement or the applicable support programme conditions.

Who Can Obtain Business Financing?

Eligibility for business financing depends on the financing method chosen. In most cases, financing is available to:

• Entrepreneurs planning to establish a company or start operating as sole proprietors;
• Small, medium-sized, and large businesses requiring financing for expansion, investments, or working capital;
• Self-employed individuals seeking financing to expand their activities or purchase the necessary equipment;
• Farmers and businesses eligible for specialised agricultural and rural development financing measures;
• Start-ups that require funding for product development, innovation, or rapid growth;
• Real estate developers implementing residential, commercial, or other real estate projects.

Specific eligibility requirements depend on the selected financing source. When assessing applications, financing providers may consider factors such as the business plan, the company's financial position, credit history, the project's feasibility, the applicant's own financial contribution, and other relevant criteria.

How to Prepare and Increase Your Chances of Obtaining Business Financing

• Maintain a stable financial position for your business. If your company regularly delays payments or experiences financial difficulties, the likelihood of obtaining financing decreases.
• Assess your ability to make an own financial contribution. Some financing measures do not cover all project costs, meaning that you may need to finance part of the project using your own funds.
• Clearly justify your financing needs. Financing providers want to understand how the funds will be used and what value they will create for your business.
• Evaluate potential risks. Consider how you would meet your financial obligations if sales were lower than expected or if the project took longer to complete than planned.
• If applying for EU funding, make sure your project aligns with the programme's priorities. Many programmes give priority to projects related to innovation, digitalisation, energy efficiency, sustainability, and other designated focus areas.
• Review the application requirements in advance. Different financing measures have different eligibility criteria, so it is important to ensure that you meet all requirements before submitting your application.

FAQ:

What documents are required to obtain business financing?

To obtain business financing, you will typically need to provide a business plan or project description, the company's financial documents, and other relevant information. The exact list of required documents depends on the chosen financing method and the lender's specific requirements.

Is it possible to obtain financing without collateral?

Yes. In certain cases, financing can be obtained without collateral. This depends on the financing method, the amount being borrowed, the financial position of the business, and the lender's requirements. However, collateral may be required for larger loans or higher-risk projects.

How long does the financing process take?

The financing process may take anywhere from a few days to several months. The exact timeframe depends on the chosen financing method and the complexity of the submitted application.

What are the most common reasons for a financing application to be rejected?

A financing application may be rejected due to insufficient creditworthiness, a poor credit history, incomplete or improperly prepared financial documentation, or because the project does not meet the financing criteria.

What are the requirements for small business financing?

The requirements for small business financing depend on the chosen financing source. In most cases, lenders assess the company's financial position, business plan, credit history, and its ability to meet the financial obligations associated with the financing.