Loans to very small businesses and SMEs: the rules you need to know

A bank wishing to reduce or terminate an open-ended loan must provide written notice and respect a notice period of at least sixty days, otherwise the termination will be invalid. For a business start-up loan, a bank typically requires a down payment of approximately 30% of the loan amount. If you are a guarantor, your liability is capped as stated in the agreement.

This page does not provide any interest rates: financing is arranged through our banking partners. It does not cover factoring, Dailly assignment, or detailed lending limits between businesses.

What the bank is examining

Bpifrance Création states that the bank typically requires "a personal contribution of approximately 30% of the total financing needed." Start-up loans generally have terms of 2 to 7 years, while real estate loans can extend over 15 to 20 years, or even longer. Processing times vary from a few days to a few weeks.

The refusal must normally be justified and explained. Several banks can also finance the same project: this is called a banking syndicate.

The costs are not limited to interest: Bpifrance also cites, among the additional costs, application fees, guarantee fees and, where applicable, brokerage fees.

Cash loans

The Bank of France defines cash credits as short-term bank loans intended for residual cash needs.

The Bank of France fact sheet dates from May 2021.

The sixty-day notice period

For an open-ended loan agreement, reduction or termination requires written notification. The Bank of France cites Article L. 313-12 of the Monetary and Financial Code: the notice period "may not, under penalty of invalidating the termination of the loan agreement, be less than sixty days." The Ministry of the Economy states: "minimum notice period of 60 days.".

At your request, the bank will provide the reasons for the reduction or suspension. According to the Bank of France, no prior notice is required in cases of seriously reprehensible conduct by the borrower, nor when their situation is deemed irretrievably compromised.

The usury rate

The usury rate is the legal maximum interest rate. It is revised quarterly: the Bank of France indicates that it is based on the average rate charged during the previous quarter, plus one-third. The current rate therefore changes every quarter: it can be found on the Bank of France website indicated in the sources.

For businesses and sole traders operating in a professional capacity, the Bank of France indicates that only overdrafts are subject to a maximum interest rate. This page does not publish any rates.

The guarantees requested from the contractor

Personal guarantee

The Ministry of the Economy states that a guarantee offered by an individual must be proportionate to their assets and income. Service-public.fr describes the rules governing suretyship:

• The individual guarantor adds by hand the mention of their commitment; ;
• The document indicates the limit of the commitment, in principal and accessories, in words and figures; ;
• In the event of a disproportionate commitment, the amount is reduced; ;
• The professional creditor must warn the individual guarantor when the debtor does not have the financial capacity to meet their commitment; ;
• before March 31 of each year, he informs the guarantor; ;
• He informs him as soon as the first payment default by the principal debtor is recorded. The timeframe for this notification should be verified with the source.

A joint and several guarantee loses the benefits of discussion and division. In a commercial guarantee, the guarantor is automatically jointly and severally liable.

Your assets

Bpifrance Création indicates that, for new sole proprietors, personal assets are automatically separate from business assets since the law of February 14, 2022. For directors of SARL, EURL, SAS, or SASU companies, liability is limited to the amount of their contributions. A guarantee remains a separate commitment: Bpifrance Création warns that if you personally guarantee a loan for your business, the bank can pursue you in the event of default. Service-Public Entreprendre defines a guarantee as a contract by which a person, the guarantor, undertakes to pay the money owed to a creditor.

Leasing

A leasing company buys the asset from the supplier and leases it to the business. It retains ownership for the duration of the contract, typically 3 to 7 years. At the end of the term, the business can purchase, return, or renew the lease. This is not a loan.

Bpifrance Création points out two things: possible financing of 100% of the investment, compared to a bank loan often limited to 70% of the pre-tax price of the financed asset, and a cost that may be higher than that of a traditional bank loan.

Business lending

A company can lend to another company, subject to certain conditions, including: an economic link between them, a lender that is a commercial company whose accounts are audited by a statutory auditor, and a loan agreement. The maximum term is two years. Service-Public Entreprendre details other conditions and limits; these are not covered here.

If the bank refuses: credit mediation

Business credit mediation is a free service managed by the Bank of France. It can be used in cases of overdraft termination, credit refusal, debt rescheduling refusal, refusal of a guarantee or surety, or reduction of guarantees by a credit insurer. Initial contact takes place within 48 hours of the application being submitted. Businesses that are insolvent are excluded.

Loans to very small businesses and SMEs: a numerical example (fictitious profile)

Situation. A very small cabinetmaking business, fictitious profile, wants to buy a machine for €300,000 excluding taxes.

Issue. She wants to know what down payment to prepare for a loan, and what changes with a lease.

Strategy. Compare the two options using Bpifrance Création's benchmarks: a down payment of approximately 30% for a start-up loan, and financing of up to 100% through a lease. This assumes the company is in a start-up loan situation and that the pre-tax price is €300,000. No interest rate is used.

Result.

Leasing eliminates the need for an initial down payment, but its cost can be higher than that of a traditional loan. The calculation doesn't compare costs: no interest rate, no rent, and no insurance are known. The profile is fictitious.

Loans for very small businesses and SMEs: what changes depending on your situation

• The form of the company : sole proprietor or company.
• The type of competition fixed or indefinite duration.
• Your deposit : amount, solidarity, matrimonial property regime.
• The nature of the need : equipment, cash flow, seasonality.
• The link with the lender for a loan between businesses.

The rule depends on your situation. No results are guaranteed.