Various types of grants, subsidies, loans and loans for small businesses are available on the market. However, choosing the solution that will prove most beneficial to your business is not an easy matter. Today we will tell you about which loans can be used by small business entrepreneurs.
SMEs, the foundation of the economy
The SME sector brings together:
- Microenterprises (with 1 to 9 employees),
- Small companies (with 10 to 49 employees)
- Medium-sized companies (with 50 to 250 employees).
The potential inherent in small and medium-sized enterprises cannot be overestimated. As many as 99.8% of Polish companies are SMEs:
- 97.2% microenterprises,
- 2.1% small businesses,
- 0.6% Medium-sized companies.
Overall, the SME sector contributes 45.3% to GDP creation (with the share of all companies equal to 67.9%). Maintaining the company’s dynamic growth rate requires investments that are often beyond the company’s financial reach. Interestingly, in Poland, innovations in the SME sector are most often financed from the company’s own resources (66.22% of small companies pay for them themselves), but the competitive market and growing customer expectations mean that entrepreneurs are increasingly turning to external financing.
As many as 13.68% of small businesses in 2021 financed investments with domestic loans and credits – This is the latest available data from the Central Statistical Office, which uses the “Report on the State of Small and Medium-Sized Enterprises in Poland (2024)” by the Polish Agency for Enterprise Development.
If your company is also in need of external funding, keep reading to see what options you have the chance to take advantage of.
External sources of corporate financing
Before we move on to specific types of loans, it is worth reminding you of the types of external financing that companies can use. In addition to the most commonly mentioned credits and loans, there are many more financial services for business. When running a small business, the following are within your reach:
- subsidies,
- funding,
- bank loans,
- leasing,
- factoring,
- loans.
Learn more about external and internal sources of corporate financing – click here!
Small business loan or credit?
The most popular forms of financing for business are loans and credits. Although these terms are sometimes confused with each other, they differ significantly.
Legal basis
The first and most important difference between a corporate loan and a business loan is the legal basis.
Credit is regulated by the Banking Law, the Civil Code and the Consumer Credit Act.
The Civil Code and the Consumer Credit Act also apply to loans , but the Banking Law does not.
Financing provider
The above is due to the fact that a company loan can only be granted by a bank. The lender, on the other hand, can be a company specializing in this matter, but not only – it can even be a non-business individual. The condition is to draw up a loan agreement – in writing, if the loan amount exceeds PLN 1,000.
Purpose of funds raised
Bank loans are usually granted for a specific purpose or category of purposes. The bank – depending on the provisions in the contract – can control how the funds are spent. If it finds deficiencies, it can terminate the loan agreement. The effect of such termination is often that the debt must be repaid immediately.
In this context, loans often prove to be a more attractive solution for businesses. This is because companies can spend the borrowed money for any purpose. Remember, however, that not all loans must have such conditions. Read the contract carefully before making a commitment. Some lenders may also offer targeted loans.
Lead time and paperwork
As a rule, getting a loan from a bank takes a little longer than finalizing a loan. This is for two reasons. First: the loan is often for a higher amount. Second: it requires the provision, preparation and analysis of more detailed documentation. As a result, entrepreneurs with smaller financial needs can obtain funds faster and proceed with their investments.
Subject of the contract
An important difference between a loan and a credit is also the fact that a credit only allows you to obtain funds, while a loan can be used to borrow things.
Which solution is better for your business?
Based on the above differences, decide for yourself which financial service will be more beneficial for your business. Consider not only the APR and the cost of financing, but also the terms and conditions of loans and credits with specific service providers, payment terms and ease of obtaining funds.
Small business loan offerings
The issue of the availability of financial services for small and medium-sized enterprises has changed strongly in recent years – and continues to change. Many new financial products have emerged, and the conditions for raising funds have strongly improved.
Service providers see more and more clearly that entrepreneurs’ expectations of financing have increased significantly – as has competition in this market. This means that companies can count on better terms today than they could five-decades ago. Although they are not as favorable as consumer financing, steps have already been made in this direction. Here are some loan options for business.
Mortgage loan
One of the most interesting financial products is a mortgage loan for companies. This solution is characterized by the possibility of obtaining large funds for business development. The high amount of the loan available is due to the type of collateral used – in the case of a mortgage loan, of course, it is real estate.
A mortgage loan for small businesses can be used by entities that meet several criteria. These conditions vary depending on the provider. In the case of the PragmaGO offer, the borrower should:
- Have been operating in the market for at least 24 months,
- have adequate collateral in kind – real estate that is not on the exclusion list,
- spend the funds for a purpose other than the purchase of fixed assets.
There are exceptions to the latter rule – entrepreneurs in the real estate development industry can use the funds from the mortgage loan to purchase real estate, as this is one of the main elements of their business.
Investment loan
Although, as a rule, loans – unlike loans – are devoid of expediency, an investment loan is governed by slightly different rules. This is financing provided for the purpose of preparing or carrying out an investment. The issue of documenting expenses should be specified in the agreement concluded between the lender and the borrower.
Revolving Loan
Companies that want to use financing with a lower amount should be interested in working capital loans. As a rule, this service does not specify the purpose of spending the funds. However, the condition is that the financing obtained must be spent for business purposes.
Revolving loans are a particularly interesting option for companies without an established market position, facing growth opportunities or facing temporary financial difficulties.
What can the funds from a revolving loan be spent on?
- covering ongoing costs,
- corporate shopping,
- Repayment of obligations to suppliers and/or contractors,
- working capital financing,
- Settlement of tax-related payments.
Before you decide on a revolving loan, pay attention to the criteria for obtaining one. Some lenders require that the company using the financing achieve a certain turnover, provide material collateral of high value, and submit a statement of submission to execution in case of problems with repayment.
Bridge loan
This is a type of financing that provides support to entrepreneurs who are waiting for funds from another source. Bridge loans are used by companies that – for example – have received grants or subsidies from EU programs or a positive credit decision and already want to launch related activities, but have to wait for the transfer of funds.
Bridge loans are usually granted for a short period of time and carry a fairly high interest rate. However, they can be an advantageous solution for entrepreneurs who want to get their project off the ground as quickly as possible. For example, in a situation where they can take advantage of a particularly attractive offer that is available for a limited time.
Take a loan for companies
Small business loans can prove extremely beneficial in certain circumstances. For example, when obtaining a loan proves impossible for various reasons, or if the company is time-sensitive.
Non-bank loans for companies are usually associated with higher interest rates, shorter financing periods and lower amounts available. In reality, however, they can be an equally favorable alternative, often allowing you to obtain large funds (a mortgage loan), make a real impact on the company’s growth momentum (an investment loan) or finance in an extremely short period of time (a bridge loan).
