Corporate Financing ABC – All Financing Types Explained

The world of corporate financing is broader than ever before. Alongside the traditional bank loan, dozens of alternative financing types have emerged – from invoice financing to crowdfunding and from mezzanine financing to revenue-based financing. According to the Bank of Finland, Finnish SMEs' loan portfolio was EUR 52 billion in 2025. As an entrepreneur, I have found that choosing the right financing type is one of the most important strategic decisions.

The Big Picture of Corporate Financing

Corporate financing broadly divides into four main categories: debt capital (loans and credits), receivables financing (invoice financing and factoring), asset-based financing (leasing and hire purchase) and equity (investments and crowdfunding). Additionally, public grants form their own important category.

Debt Capital – Loans and Credits

Bank Loan

A bank loan is still the most common form of corporate financing in Finland. The interest rate is typically 3–7% p.a. and the loan term 1–15 years. A bank loan is best suited for investments, business acquisitions and other larger financing needs. The challenge is the collateral requirement and lengthy application process.

Credit Line

A credit line is flexible working capital financing where interest is paid only on the used portion. It suits seasonal fluctuations and unexpected expenses. The limit size is typically EUR 10,000–500,000 for SMEs.

Bond

A bond is suitable for larger companies (revenue over EUR 5M). The company issues bonds to investors. The interest rate is usually 5–10% p.a. and maturity 2–5 years. The benefit is that the bank does not act as a gatekeeper.

Receivables Financing

Invoice Financing

Invoice financing converts receivables into cash within 24 hours. The company chooses which invoices to finance. The cost is 1–3% of the invoice value. No collateral required – the invoice itself is the security. Especially suitable for B2B companies with long payment terms.

Factoring

Factoring is more comprehensive receivables financing where the finance company finances the entire invoice portfolio and often handles collections as well. Factoring suits companies that want to outsource receivables management entirely.

Asset-Based Financing

Leasing

In leasing, the finance company owns the asset and leases it to the company. Payments are fully tax-deductible. Especially suitable for rapidly depreciating technology and vehicles.

Hire Purchase

In hire purchase financing, ownership transfers to the buyer. Suitable for investments where ownership is important. The interest rate is typically 4–8% p.a.

Equity

Venture Capital

A venture capital investor invests money in the company in exchange for ownership. Suitable for scalable business models targeting rapid growth. The investor brings money, expertise and networks, but the entrepreneur gives up part of ownership.

Crowdfunding

In crowdfunding, a large group of investors finances the company with small amounts. Equity crowdfunding suits EUR 50,000–2,000,000 financing rounds. Platforms in Finland include Invesdor and Springvest.

Public Financing Sources

Comparison of Financing Types

How to Choose the Right Financing Type?

In my own company, I have learned that the choice of financing type depends above all on the intended use. I have compiled a simple decision tree to help with the choice.

Fundamentals of Applying for Financing

Regardless of the financing type, financiers always evaluate the same fundamentals: the company's ability to pay, collateral, business plan and management expertise. A well-prepared application significantly speeds up the process.

"The ABC of corporate financing is simple: know the options, compare the costs and choose the right one for the purpose. Do not settle for the first offer – there is more choice on the market than ever."

Summary

The corporate financing landscape is broad and constantly evolving. Alongside the traditional bank loan, invoice financing, leasing, venture capital and public grants offer diverse alternatives. The right financing type depends on the purpose, speed requirement, cost and collateral situation. Diversify your financing sources and apply for financing in time.