Home Financial SourcesPrivate Funds How to decide between different possible forms of innovative development projects’ financing?

How to decide between different possible forms of innovative development projects’ financing?

by Irena Rezec

Companies who are searching funds for the realisation of their projects have more possibilities. Due to non-refundable character of national and European programmes these are the most desired once. In spite of that we should not to forget other financial opportunities as well.

Only when we analyse all possible ways of the project’s financing we are able to choose the most suitable financing type, or in most cases the combination of different financial sources.

The main questions which should be answered are related to the:

  • time which is needed for the funds acquirement;
  • specific requests and conditions required by an individual financial source;
  • average successful rate;
  • business opportunities which might come of the project also after the project’s official end.

The spreadsheet below presents simplified principal differences among individual groups of possible financing forms.

Form of financingMain characteristicsAverage time needed for the project proposals' preparation*Time from the application date to the project/funds approvementOpportunities beyond the project's official end
Banksrefundable funds;

gurarantees and suitable credit status are requested;

usually favorable interest rates;

no need to have other partners;
the shortest time of all other possible ways of financingthe shortest time of all other possible ways of financing – in average from few days – 1 month/
National programmes of sectoral ministries and national agenciesnon-refundable funds;

other partners are not always requested;

strong arguments reffering to creation of new jobs, export growth or similar are needed;
from 1 – 2 months2 – 3 monthseventual partnership strengthening in case there are more partners in the project
EU programmes and initiativesnon-refundable funds;

the quality of the consortium is important;

strong arguments reffering to the EU dimension of the project, innovative project's idea and project's results influence on the consortium partners development and growth;

co-ownership of the project's results;
1 – 6 months3 – 9 monthseventual international partnership strengthening;

other business opportunities in consortium partners' countries;
Risk/Venture Capital and Business AngelsROI – Return of Investment is an important factor in the investor's decision making;

strong market potential in the perspective sector;

co-ownership of the project results;

strong investor's commitment;

very often also an active investor's participation in management and marketing activites;
1 – 6 months3 – 9 monthseventual further co-operation, development and marketing
Strategic Alliancesstrategic, agreement based co-operation;

very strong market oriented decision of partners with high level of complementarity among them;

ROI – Return of Investment;

stronger market potential in joint Strategic Alliance;

often the joint brands are developed (co-branding and co-ownership of common brands);
1 – 6 months3 – 9 monthslong-term co-operation and a common vision achievement are desired

In all cases the project initiator has to present to the potential financial source a very good value proposition as well as organisational and management capabilities which convince the financial source about the high probability of successfulness of the project.

Above mentioned “pre-decision making factors” should be also the first subject of any business consultant who offers an advice and assistance to SMEs in their search for funding. Only then the other business consulting support eventually may follow (proposal preparation, and other assistance in the implementation and other phases).

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