FINANCING THE BUSINESS

The formal business plan

French banks should be approached with a business plan. This should be prepared to professional standards and drafted in French.

This plan will include:

• a market evaluation
• a full description of the intended trading operation
• details of intended capital purchases, including property leases
• the intended legal format and constitution of the company
• cash flow forecasts
• a full asset and investment profile
• a forecast of accounts for the first three years of trading. For this you do not so much require a crystal ball as the application of a formula which begins with something perhaps slightly better than breaking even and concludes with a note of incautious optimism.

For anything more than the most modest business venture, this information should be completed by an accountant (un comptable) or a professional auditor (un commissaire aux comptes).

Business loans

Business loans should be approached rather differently from those applicable to a normal loan or mortgage for the purposes of buying a property. The distinction is that in this instance, although a property may be required security, it is the business (which may have limited liability) that requires the finance.

A UK bank

A UK bank will approach the matter in much the same way as they would for setting up a UK business, but are likely to require additional security and safeguards.

The venture capital sector

One way in which French companies raise money is through the circulation of a promotional prospectus on the capital markets. This accounts for around 40% of credit and short-term finance. Rates of interest are competitive.

A French bank

French banks offer a number of arrangements. The principal forms of finance generally amount to loans or leasing contracts for between two and 20 years. Loans are available for up to 80% of the total investment, subject to depreciation, stock and equipment.

When the business involves a property purchase, even where this is domestic premises used as a small business place, the loan will invariably be secured against the property.

Sometimes, 100% finance is available for certain leasing arrangements. In this case, a leasing company owns the premises for the duration of the lease, but the tenant has the right to buy when the lease contract is terminated. French banks will normally require the following guarantees:

• a charge on the business
• a mortgage on the property
• a charge on certain items of equipment
• an inventory of possessions
• insurance cover assigned to the bank.

Cheaper loans

Loans for smaller amounts, which must not add up to more than 50% of the business, can sometimes be obtained at preferential rates from trade organisations.

Another form of loan is possible if you join a franchise network. In this case, a bank will accept guarantees from a mutual guarantee society set up on behalf of the franchise operators. In some cases, it is possible to obtain a loan that includes the cost of joining the network.

Tax breaks and incentives

The French government is keen to encourage employment and to support investments in the country. This means:

• Government-subsidised loans are available to some craftsmen and traders.
• Industrial business grants and subsidies are available on a regional basis. This is similar to the regional aid programme operating in the UK. It is EU funded and intended to help commercial and industrial regeneration. Information is available from the conseil régionale in each area.
• Indirect grant aid is available in the form of tax abatement for new businesses. For the first two years 100% abatement on profit taxation applies. This is followed by a sliding scale that reduces to a 25% abatement in the fifth year. Independent professionals, and those selling financial services and insurances, do not enjoy this abatement.
• Taxes professionnelles are not levied in the first year. These are similar to UK business rates. The bill can vary considerably according to location, and exemptions beyond the first year are also determined on a local basis.
• Up to 25% of the initial investment in a business can be offset against personal income tax. The ceiling here is €1,500 for a single person and €3,000 for a married couple.