Financing your company's growth: equity, quasi-equity or debt?

Opening a new site, accelerating internationally, financing an acquisition, strengthening a balance sheet stretched by growth: every corporate project calls for the right financial resource. For the owner of an SME or a mid-market company, the question is not only where to find the funds, but which structure protects the company’s trajectory and its independence.

Start from the need, not from the instrument

Financing is designed around a business plan. Three questions frame the thinking:

• How much, and what for? Capital expenditure, working capital, an acquisition, hiring: the use of funds determines the amount and the horizon.
• How much cash does the company generate? A recurring, profitable business can carry debt; a heavy investment phase or rapid growth calls for more equity.
• How much control does the owner want to keep? Opening the share capital means welcoming a partner and a governance framework; borrowing means accepting repayments and undertakings.

The answers point towards one of the three main types of resource — and, most often, towards a combination.

Equity: opening the share capital to an investor

An equity raise strengthens the balance sheet durably and brings in a partner who supports the project. It entails dilution, the extent of which depends on the valuation agreed and the amount raised.

Investor	Project profile	What they bring beyond the funds
Growth capital fund	Profitable SMEs and mid-market companies, accelerating	Structuring, network, preparation for a future sale
Family office	Long-term projects, flexible governance	Patience, closeness to the owner
Corporate investor	Industrial complementarity	Access to a market, commercial partnership
Public investor (Bpifrance)	Innovation, industry, international expansion	A catalysing effect on private investors

A successful raise rests on a clear equity story, a well-argued business plan and competition between the most relevant investors. The negotiation is not only about valuation: the shareholders’ agreement, the governance clauses and the liquidity terms weigh as much as the price.

Quasi-equity and convertible bonds

Between equity and debt, quasi-equity offers a middle path. Convertible bonds, mezzanine and participating loans provide long-term resources, subordinated to bank debt, without immediate dilution.

Their cost is higher than that of senior debt, and a future conversion into equity remains possible depending on the terms negotiated. They suit situations where valuation is difficult to set today, or where a funding round needs completing without further diluting the existing shareholders.

Debt: preserving ownership

For a company that generates steady cash flow, debt is the least expensive and least dilutive resource. Conventional and alternative financing markets offer several instruments.

Instrument	Lender	Characteristics
Amortising senior debt	Banks	Lowest cost, progressive repayment, financial covenants
Bullet debt	Banks	Repayment at maturity, preserves cash flow in the meantime
Unitranche	Debt funds	Single bullet tranche, more flexible and faster, higher cost
PIK debt	Debt funds	Capitalised interest, no cash outflow before maturity

Beyond the rate, the quality of a financing is measured by its flexibility: leverage, maturity, covenants, and the capacity to fund future acquisitions. A structured competitive process among banks and debt funds secures materially better terms than a bilateral negotiation.

Combining resources: a tailored structure

In practice, growth transactions for SMEs and mid-market companies combine several sources. To finance an acquisition, the structure might bring together:

1. Equity, from the existing shareholders and, where relevant, an incoming investor.
2. Acquisition debt, senior or unitranche, sized against the repayment capacity of the enlarged group.
3. A vendor loan or an earn-out, negotiated with the seller of the target.
4. Public funding alongside, for innovation or international expansion.

The balance between these resources determines the overall cost, the dilution and the room for manoeuvre later. It is designed upstream, at the same time as the project itself.

An IPO: an option for some SMEs

For fast-growing companies with a readable plan, a listing on Euronext Growth can be an alternative to a private raise. It provides equity, visibility and liquidity for shareholders, in exchange for disclosure obligations and a demanding process. It usually forms part of a multi-year development strategy and is prepared on the same fundamentals as an equity raise: equity story, business plan and governance.

The key point There is no such thing as good financing in the abstract, only a structure suited to a project, to a repayment capacity and to an ambition. Equity, quasi-equity and debt combine; putting them in competition and negotiating them is what makes the difference to cost, dilution and the owner’s freedom of action.

Putting financial partners in competition

Whether equity investors, banks or debt funds are involved, the terms obtained depend on the quality of the file and on the competitive dynamic created. An adviser with direct access to the decision-makers in these markets structures the file, selects the relevant partners, runs the process and negotiates the documentation, so that the owner secures funding for the project on the best terms, without being diverted from the business.