Shareholder equity
Shareholder equity is (mainly) money invested in a company by the entrepreneur or its owners. The more of their own money an entrepreneur invests in their company, the less they need from other investors. Investing your own money in your company can be a way of signalling your commitment to external lenders and investors. Income from business activities and any rise in your company’s value will increase shareholder equity. Shareholder equity does not need to be paid back.
Liabilities
‘Liabilities’ in this sense largely means loans taken out by your company, which it must pay back with interest. Lending does not give a lender ownership of a company. In accountancy terms, liabilities are divided between current liabilities and long-term liabilities. Current liabilities include items such as accounts payable: debts on purchases. Long-term liabilities include loans taken from a bank, finance company or public sector organisation.
Bank loan
A bank can grant a loan to cover a company’s initial investments, such as the purchase of machinery and equipment. However, before granting a loan, the bank will want to ensure that your business will be profitable and you can pay back the loan. A new company’s business plan and the related calculations must be credible and realistic, since they describe the business’s profitability and potential for success.
The bank will need collateral for any loan it grants, for example personal property of the entrepreneur. If needed, the bank can apply for a partial guarantee from Finnvera on your behalf.
Hire purchase and leasing
A company can use hire purchase and leasing to acquire movable property, such as equipment and machinery. Hire purchase is a way of buying goods, whereas leasing involves hiring them for long-term use.
In addition, goods bought on hire purchase can serve as collateral for a loan without further collateral or guarantors. When you come across something you need to buy, you can ask the seller to make a financing application, or you can contact an OP cooperative bank directly to make a hire purchase agreement. Goods bought through hire purchase will be transferred onto your company’s books, for accounting purposes, after you sign the agreement. In most cases, you can then make a VAT deduction on the purchase price and make normal depreciation entries in your accounts for the purchased goods, in other words allocate the cost of the asset over several years in your accounts. Your company will own the goods once it has paid the final monthly instalment according to the hire purchase agreement.
Leasing is long-term rental through which you can obtain items such as machinery, equipment and vehicles for your company. The rental period and monthly payments are agreed when the leasing agreement is drawn up. A rental period of 2–6 months is standard. The rented asset is returned, or the company can buy it, at the end of the rental period.
The advantages of car leasing include stable costs and predictability. In addition to the selected vehicle, the price depends on the additional services you’ve chosen to include in the agreement. In the most comprehensive option, the monthly price covers all fixed costs related to the leased car’s use, including servicing, insurance, repairs and tyres.
Learn more about hire purchase
Learn more about car financing for companies
Read more about all of OP car leasing solutions
Public sector grants and loans
Loans and grants for starting and developing a business are available from public sector organisations as well as banks. Such organisations include local action groups (LAGs) under the Leader Programme; Business Finland; Centres for Economic Development, Transport and the Environment (ELY Centres); and Finnvera, which is often the initial public sector partner of startups.
Finnvera, Business Finland, ELY Centres and local action groups
Finnvera is a specialised financing company owned by the State of Finland. It helps companies during the startup and growth phases and with entry into global markets, for example.
Finnvera’s Start Guarantee enables new SMEs to obtain loans from banks for investment and as working capital. Your bank can apply to Finnvera for a Start Guarantee on your behalf. Property developers and farmers are not eligible for guarantees or financing from Finnvera.
Business Finland provides innovation funding to help its customers to grow, go global, and develop their businesses.
ELY Centres can provide discretionary funding for development programmes on the basis of the company and need, if the company has the potential to be profitable and the funding would be important to programme implementation. Companies can apply to local action groups for Leader funding for projects that meet a clear need and have long-term impacts.
Startup grant
When starting up in business, you can apply for a startup grant for full-time entrepreneurship based on continuous business operations. Start-up grants are available for a maximum of a year if you have a strong basis for starting a business and establishing a company. You can apply for a startup grant when registering as a client with a TE Office. Please note that you should only register your company after receiving a decision on your application for a startup grant.
Jere Hakala, Executive Vice President of OP Etelä-Pirkanmaa, was interviewed for the article.
