Izabela
Krawczyk-Sokołowska (Poland)
(Technical
University of Częstochowa,
Faculty
of Management)
External sources
of financing innovative
companies
Summary
The
development of present economy depends on innovations. But the investment
activity of an enterprise needs particular financial resources. There are
internal and external sources of enterprise financing, the role of external
financing sources is especially important.
The
article is the review of chosen developmental and innovative activity financing.
External sources
of financing companies.
External
financing is inflow of the financial assets from outside of a company,
especially important when the company decides on development or innovative
activity . External source of financing is a good way of financial support for
a company on condition that the previous objective and character of an
innovative enterprise is not changed[1].
Additional capital can be invested both by the former owners and the new
associates on the specified conditions. Then they contribute to financing their
own financial assets, it means from outside of the company[2].
Gaining
financial assets from outside depends on diverse factors, mostly on: abilities
of a company, a kind of enterprise, methods of gaining innovations and the
like.
Sorts of selected
sources of external financing the innovative activity of companies is shown in
the diagram.
Drawing #1 Selected
external sources of financing companies activity.
Source: W. Dębski: Zarządzanie finansami
przedsiębiorstwa. Teoretyczne i praktyczne aspekty, PWN, Warszawa2005,
s.386; Finanse przedsiębiorstwa, pod red. L. Szyszko, PWE, Warszawa
2000, s.68
Basic capital – increase of the
basic capital of a company is a good way of subsiding the development–
innovative enterprise. Additional capital can be invested both by the former
owners and organizers of the enterprise or a new associate or associates who
join the enterprise on the specified conditions[3].
Acceptance of the
new inputs or shares into a company, positively influences its financial liquidity and increases amount
of the own capital, what allows realization of the different investment
actions. Moreover, the capital invested in a company will be refunded only
during company liquidation.
Issue of stocks is a way of financing , that
concerns big companies, having stable market position. In principle each
company , after meeting requirements of admittance to the stock exchange may
put stocks into the public trading[4].
The possibilities of finding new purchasers should be taken into account, what
is the most often determined by the trust on the market. Undoubted advantage of
this form of financing is growth of the own capital, what increases ability of company to handle the
debt. A disadvantage can be fact of dispersion of stocks and undoubtedly costs of issue of stocks, because
they are relatively high[5].
Public aid in the EU countries includes all benefits coming from the public
sources, which winning some advantages specified business entities,
distort conditions of competition.
Public aid includes support given from the EU member state or from government
sources. Public aid is given in the form of : grants and tax abatements,
capital-investment subsides and bank guarantees also[6].
This kind of financing sources allows realization of
the different social-economic objectives e.g. animation regions of the low
development potential, aid for development and research, aid for environment
protection, support of development of the small and medium-sized companies,
trainings and the like.
Bank (economic) credits include credit services for the economic
entities for financing business activity, for the operating objectives (working
capital credits) investment (investment credits) and other needs , which are
compliant with credit policy of the relevant bank[7].
Credits are an
important source of external financing of the innovative activity of companies.
They are one of the forms of supplement of the own funds (capitals) and they
are allotted for financing strictly specified objectives[8].
Banks traditionally geared towards financing of companies activity, treat
financing of the innovative enterprises with big reserve, because of the
increased risk, elongated time of realization, and lack of evaluation systems
of the innovative enterprises as well[9].
An important kind
of the bank credits are the bridging credits , given when a customer needs financial assets
before giving basic credit[10]. It is especially vital when the financial assets
coming from a entity applying for a credit are demanded, it concerns among
others EU structural funds.
Mercantile credit is a special form
of a credit. A moneylender is a vendor or producer of goods and services,
and a borrower is purchaser of these goods and services[11].
This form of credit occurs mainly when the recipients don’t possess proper
abilities to use bank credits.
Mercantile credit in transactions between contractors should be considered as
form of delay payment day in relation to the date of sale.
Loan funds are near-bank
units, supporting realization of the objectives of increased risk. The funds
provide financial aid in the form of preferential loans for small and
medium-sized companies, and the individuals beginning business activity[12].
Financial assets being at the disposal of the funds mainly come form EU and World Bank aid funds, mainly
aimed at the issues of fight with unemployment.
Credit guarantee
funds serve financial support in the form of guarantees mainly for small and
medium-sized enterprises, having problems with completion of the securities
demanded within credit procedure and to meet requirements of the legal nature.
The funds give guarantees for companies striving for bank credit, or a loan
from the other financial institutions, incapable of independent security of a
debt[13].
The funds are near-bank , non-profit institutions.
A special entity in the market of the guarantee funds is Bank
Gospodarstwa Krajowego (BGK), that runs the biggest in
Actual
standing of the loan and credit guarantee funds and the role that they can play
in financing innovativeness and transfer of technology causes, that capital and
technological support as well is necessary for both of these elements, aimed at
strengthening of their structure and location at the area of the whole country[16].
Venture
capital consist in investment of
capital by the external investor, by acceptance of the new issue of actions or
shares[17].
The investor offering venture capital thereby becomes a co-owner of the
partnership which is financed by him. Moreover this financing concerns companies which are not listed on the stock
exchange. So this venture capital is considered as an element of the so-called
, non-public capital market[18]. The only form of security is share in
ownership and the rights resulting from it e.g. voting, information and
control. Venture capital is offered via fund which is managed by specialists.
Venture capitals funds are the closed ones, which activity consist in the fact,
that a group of investors (most frequently a dozen or so ) contribute their
money for investments of the specified type,
unsure but making a possibility of high rates of return[19].
Stocks or shares of these companies are purchased with intention of their later
resale. The investment usually last for 2 to 5 years, and the return of the
invested capital, and the potential profits come from sale of stocks or shares
of the company.
Major hopes for
increase of investments in the innovative companies are connected with creation
of the seed and start-up funds (funds of the seed capital) it is
financing the very early phases of development of the innovative project.
Financing establishing a company, its
entry on the market and building its position are the most risky investments,
demanding high costs of their preparation[20].
Thus necessity of
government–state aid in creating funds
of this type should be taken into account, by launching programs of development
of such funds.
Business angels ( venture capital
from the private individuals) are the natural persons, who invest their own
financial assets in the new (young) companies of high potential of growth[21].
Most often they invest in the branches they already know and where they have
some experience.
Corporate venture
capital it’s an expression for the
venture capital investment activity realized by major companies. Involvement of
the corporations having big technological and market experience in the
investment process improves chances to succeed. It mainly results from the
correctness of project evaluation and support in the technical and market scope[22]. The unique feature of such investment is the
fact, that apart from motive of profit, investment activity is used for
understanding and analysis of the new technologies introduced by the small
companies to gain new ideas and market concepts[23].
Issue of bonds is the financial instrument useful for a borrower,
because in such way he can take out a loan form many creditors for a relatively
long time period. However this form of financing can be used only by the entities that have good and
established position[24]. A bond is an investment instrument being
long-term creditor instrument. An issuer
takes out a credit from the purchaser of the bond. This credit is given back by
the issuer on the settled date of repurchase of bonds. In addition to this
issuer pays the bondholder interest[25]. In this form of financing extremely important
is confidence of purchaser of bond in the issuer, because this confidence
influences possibility and scale of putting the bonds into the trading.
Companies which enjoy good reputation are very confident. In case of the companies little-known on the
market there are applied additional guarantees of the others entities , most
often banks and insurance companies.
Leasing is a form of the
subject credit consist in periodic enabling use of the specified material goods
with some payment, mainly investment ones without necessity of buying it[26]. Leasing consist in handing over by a lessor
(makes goods available) to a lesse (uses
the goods) for payable use for a specified period of time some specified goods.
Lesse first acquires specified item and thanks to its use he gains some assets
to pay the obligation[27].
It is especially important form of the financial support for the economic
entities, which have vital problems in fulfilling demands as it concerns bank
credits e.g. security of the credit payment. Leasing constitutes one of the
basic forms of financing innovations.
Factoring is a transfer of
obligation from a creditor (company) onto a factor (commercial bank). This
contract obliges to pay all of the
amounts due of the company towards
suppliers of goods and services and to exact payments from the company’s
debtors, even if thy have some difficulties in payments[28]. However, this form of financing innovative
enterprises is used rarely, mainly because of costs and necessity of having
fairly established position and current conducting production activity and the
like. Factoring is an alternative form of the short-term financing of companies
especially for that ones, that for them bank credit is restricted both from a
point of view of costs and the bank
procedures[29].
Conclusion
Innovativeness of the Polish
economy is decidedly lower than in the EU countries, what mostly result from
relatively low outlays on the research-development activity, weakness of
transfer of technology and knowledge, and also low propensity of the production
companies for innovations.
A vital incentive for
interest in the innovative activity of companies is a proper system of tax
abatements within the scope of the regulations concerning personal income tax
(PIT) and corporate income tax (CIT). Thanks to the new regulations [24]: an
entrepreneur may deduct from tax base (on specified conditions) purchase the
new technology from the Polish or foreign scientific units. Moreover there is
possibility to count into the cost expenditures on development works,
regardless of their effect, period of amortization of the accomplished
development works has been cut down from
36 to 12 months, 22% VAT rate for the scientific-research services has
been introduced.
Policy of the state should be aimed at promotion of the innovative companies through
proper financial system within the scope of taxes, possibilities of support by
the public means, access both to credits and bank loans and outside banking
loans. Extension of system of the credit guarantees and loan funds and other
forms of financing i.e. investment funds and venture capital is also necessary.
Despite
of considerable diversity financing sources of the innovative activity of
companies, often they are a basic barrier to their development, what mainly results
from lack of the cohesive system of supporting innovations. Only the change of
the previous policy of the state towards increase of accessibility of sources
of external financing, through
facilitation of possibility of use diverse financial instruments, can
accelerate development of the innovative companies in
The
new financial-legal solutions are still necessary, that encourage entrepreneurs
(national and foreign) and economic entities to invest in innovations (tax
abatements, investment allowances, lengthen amortization and the like).
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Izabela Krawczyk- Sokołowska, Ph.D.
– Katedra Finansów, Bankowości i Rachunkowości
Zarządczej, Wydział Zarządzania, Politechnika
Częstochowska, Al. Armii Krajowej 19B, 42-200 Częstochowa,
e-mail:krawczyk@zim.pcz.pl