Banking and capital markets law – all forms of business financing from the perspective of both borrowers and finance providers

Any entrepreneur will tell you: business success requires objectives and innovative ideas. But without the necessary capital, even the best ideas and objectives only get you so far. The reality is: to get new ventures off the ground and to engage in business at all, you need money – sufficient funds, at the right time, and on the right terms. The chosen form of financing is key – especially as there are a lot of options, each with their own specific features. Our certified specialist lawyers in banking and capital markets law are experts in business finance. They help you as a business owner to realise your financing objectives, select the right form of financing and support you if changed circumstances require refinancing.

Credit institutions and other finance providers can also rely on our expert advice on banking and capital markets law in areas such as provision of collateral in special situations such as a company crisis and drafting of investment agreements, as well as realisation of collateral and sale of non-performing loans.


Use our expertise to find the right business financing for you

There are many situations in which companies require funding and capital: during start-up, but also when they need to finance growth, when they are looking to fund a company acquisition, if they change their business model, or if they carry out fundamental restructuring in response to a crisis. The range of possible forms of financing is extensive. They range from internally generated financing and mezzanine funding to classic loans with the help of banks or tapping into capital markets.

To ensure uninterrupted access to adequate funding, managers should keep an eye on their financial and liquidity situation and look out for signs of emerging liquidity risks. Using a mixture of different financing instruments also plays an important role in ensuring secure funding. The principle behind this approach is to use different forms of financing to reduce dependency on individual funding providers and financing instruments.

To achieve this goal, it is essential that capital tie-up periods are aligned with the assets concerned. Financing for fixed assets which are tied up long term should be covered by equity or long-term debt. Attention should always be paid to possible provision of collateral for borrowed capital, starting with the question of which collateral should be granted to whom. Providers of venture capital, i.e. capital provided to companies early in their life cycle, or private equity funds, which seek to acquire controlling interests, usually ask for extensive rights of influence as a condition of their involvement, as well as options to increase, reduce or dispose of their investment at certain points.

However, such strong investor influence can also have a positive effect on the company, particularly if the funding provider has a thorough knowledge of the relevant sector, anticipates trends and contributes to the development of ideas for the company’s future evolution. In these cases, the interests of the finance provider and the company strongly overlap and the commitment has a different quality to bank financing. The converse is also true: if the parties do not have a common vision for the company, they should end the cooperation.

Financing by banks is still the most common form of business financing. Companies typically use a combination of short-term and long-term loans to provide the right fit for their funding needs. Interest on these loans is usually lower, but access to the loans is typically conditional on provision of collateral.

There is an important rule of thumb in business financing: transparency is a borrower’s trump card. Managers must be able to show their lenders or other financial backers, transparently and credibly, that their business model will be viable over the months and years to come. Companies in crisis should be able to explain what caused the problems and how they can be resolved.

Growth is possible even during or following times of crisis, if there is a clearly defined business model. If there is a clear picture of core business activities, a company can use its existing know-how to grow organically or even make targeted acquisitions. Prospects for growth are an important signal for lenders, who are more likely to take on the risk of providing further financing if a borrower has a convincing growth story.


Important considerations for finance providers when making their financing decision

Financiers want to support business models which are durable and successful. Finance providers naturally view business financing differently from borrowers. The main question for them is whether default risk is proportionate to return, and what collateral and influence they need to avoid credit loss – particularly in the case of longer-term financing arrangements.

For the finance provider, risk varies depending on the type of financing and must be reflected in the financing costs determined in its risk classification. If its liability is similar to that of the owner of a company, the finance provider may, under certain circumstances, not only impose disclosure obligations but also demand rights of influence such as the right to appoint members to an advisory board to be set up.

Companies can rely on financiers not only when they are growing, but also when they are experiencing difficulties. However, if the company needs to restructure and requires funding to do so, the ability of management to communicate convincingly the business model they will use to earn money post-restructuring is key to obtaining a positive financing decision. From the perspective of finance providers, particularly secured banks, effective collateral management – which includes in particular legal arrangements to ensure that collateral is protected in case of insolvency – plays a vital role here.

The right business financing with Schultze & Braun

Our business financing experts are the right choice for borrowers and lenders alike – particularly in crisis situations where areas such as liquidity or collateral portfolios require closer scrutiny. We support our clients in negotiations and draft the relevant contracts. Our specialists have not only the necessary experience and expertise, but also the sensitivity required to deal with the various parties involved.

What type of financing can we help you with?


Martin Kropp

Rechtsanwalt (Attorney at Law), Fachanwalt für Bank- und Kapitalmarktrecht (Specialist lawyer for banking and capital market law)


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