What kinds of financing are available to grow your business?

Investment loans can be used to obtain mid- or long-term financing for long-term investments in moveable property or real estate, for the purposes of creating, improving or expanding a business activity. In other words, this property could just as easily be land or industrial premises, production tooling, machinery, vehicles or intangibles such as goodwill, software, patents or licences.

The main advantage of an investment loan is its flexibility. It offers a wide range of options for the borrower. The loan maturity – which cannot be less than three years – will vary based on the life of the property that it will be used to finance. In theory, there are no limits to the loan amounts. Repayment is flexible based on what is being financed and your cash flow requirements. Depending on how the project progresses, the loan can be received as a lump sum or drawn in several instalments. In the latter case, the payment terms and interest apply only to the amount of the loan actually used. 

Most banks in Luxembourg will pass on applications for equipment loans to the SNCI (Société Nationale de Crédit d’Investissement – National Investment Credit Association). Subject to certain requirements, equipment loans are a means of getting joint financing from the bank, at very attractive fixed rates[1], for depreciable tangible assets and amortisable intangible assets, and for buying land to be used exclusively for business purposes. These loans may not be used to finance any parts of buildings used for non-business purposes, rolling stock (vehicles) or inventories of raw materials or finished goods. An equipment loan may be granted for up to 25-60 percent of the eligible cost of investment, or up to 75 percent for a company’s first premises!

[1] The fixed rate for equipment loans is currently 3%. This is a net rate with no additional commissions or fees. 

This is a cash-flow loan whereby your bank authorises you to have a negative balance in your company’s current account. The minimum amount is €125,000 and the time frame is theoretically unlimited. In certain cases, a maturity date may be established. You may use the funds at any time without providing supporting documents, and repayment of the sums debited is entirely at will. Interest is calculated based on a variable rate and is in principle collected every three months.

Just like a fixed-term advance (except that the latter involves a set amount and at a fixed maturity and interest rate), cash credit will help you finance your operating cycle as well as your working capital requirements.    

If your company operates abroad, you can secure all of your import/export transactions via a letter of credit. With an export letter of credit, your bank guarantees you payment for goods if you can provide proof of shipment. With an import letter of credit, your bank agrees to pay your supplier once the merchandise has been shipped.

The purpose of financial leasing (also known as finance leasing) is to finance any movable asset for professional use: rolling stock, industrial and handling equipment, civil engineering machinery, IT and office automation tools, medical equipment, commercial installations, etc. The list goes on!

The principle of financial leasing is as follows: at your request and according to your specifications, the leasing company (the owner-lessor) acquires full ownership of a movable asset with a view to leasing it to you for a period that is generally between 40 and 90% of the asset's useful life.

In return, you pay a periodic rent, usually on a straight-line basis, which is fixed from the start of the contract; this can be monthly, quarterly, even half-yearly or annual, depending on your requirements.

At the end of the contract, you have three options: either you buy the asset for the residual value initially agreed; or you do not exercise the purchase option and return the asset to the lessor, who retains ownership of it; or you extend the contract by refinancing it for the residual value.

There are many advantages to financial leasing:

• It's a flexible solution that allows you to buy out the contract early at any time, and it can incorporate non-linear lease payments depending on your cash flow.
• You also don't have to commit any of your own funds, as everything is financed 100%, including VAT, by the lessor. 
• From an accounting point of view, leasing is an off-balance sheet transaction. The lessor retains ownership of the asset and includes it in its balance sheet.
• The tax impact is not insignificant either, since the lease payments and VAT are fully deductible from your taxable profits. 

To find out more about our tailor-made financing solutions, visit our Business Banking page.

Keywords: fixed advance, overdraft facility, documentary credit, equipment loan, investment loan, cash flow loan, operating cycle, working capital, ING, financial leasing, financing solutions.

12/2023