Why should a small amount of financing be treated differently from a large amount?

Pourquoi faut-il traiter différemment un petit d’un gros montant de financement ?

When it comes to financing a project, the size of the amount to be financed can have a significant impact on the way it is managed. Financing a “small amount”, i.e. less than €3 million, and financing a “large amount”, i.e. more than €3 million, often require different approaches. In this article, we will look at three points where there is a difference in treatment between a small amount and a large amount. Firstly, there is a difference in process time, which means that a simpler and less costly structure needs to be put in place. Finally, we will see that the size of the amount also has an impact on the funder to be involved.

1. A difference in processing time for small and large amounts of funding

When it comes to financing a small amount, it’s often best to opt for quick and efficient solutions. Small-scale projects may require immediate financing to meet urgent needs. In such cases, administrative procedures can be simplified to speed up the financing process. For example, short-term loans or lines of credit may be more suitable for rapid financing.

On the other hand, financing larger amounts often requires more detailed planning and longer stages. Larger amounts generally involve more in-depth financial assessments and risk analyses. Procedures can be more complex and often require the involvement of various stakeholders. It can take time to establish solid partnerships and financing agreements.

2. A difference in structure to support costs

The financing of a small amount can be managed with a simpler and less costly structure. The administrative costs associated with a small amount can be proportionately higher if the same complex processes and procedures are used as for a large amount. As a result, it is often preferable to adopt lighter, less costly approaches to handling small amounts.

On the other hand, large-scale financing often requires a more robust and complex structure to support the costs. Large-scale projects generally involve greater expenditure and may require long-term financing. This may require more time and the use of financing mechanisms such as trusts, bond issues or syndication. A solid, robust structure is needed to ensure the long-term viability of the project.

3. A type of funder according to the size of the financing amount

Different amounts of funding often attract different types of funder.

For small amounts, it is common to turn to more informal sources of finance, such as family loans or personal investments. Some banks also have divisions dedicated to smaller-scale financing, with tailored and reduced analytical approaches. Businesses can approach their bank as an existing customer, and the terms are often attractive.

Small businesses can also benefit from participative financing or microcredit. Such financiers take a statistical risk approach, assuming that the greater the number of financing lines allocated, the more diversified their risk.

On the other hand, larger amounts often require the involvement of institutional financiers, such as banks, investment funds or government bodies. These funders are able to mobilise greater financial resources to support large-scale projects. Before committing to financing this type of large-scale project, funders generally require more in-depth guarantees and assessments, analysing applications on a case-by-case basis without pooling risk or taking a granular approach.

It is therefore crucial to treat the financing of a small amount differently to that of a large amount. Small amounts often require quick and light approaches to meet urgent needs, whereas large amounts require in-depth planning and a solid structure to support the associated costs. In addition, the types of funders involved often differ depending on the size of the amount to be financed. At Chetwode, we understand these differences and work with companies to tailor the funding strategy accordingly, so that we can find the most appropriate funding on the best terms for the business.

Finally, it should also be noted that if a need for a small amount recurs on a regular basis, there is the possibility with Chetwode 360 of setting up a financing programme.

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Julien Dufour

This article was written by Julien Dufour during his internship at Chetwode as an assistant account manager and MSc Finance, Investment & Wealth Management student at NEOMA BS. He was also a CFA Level I candidate.

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