Interesting Facts: Funding and Financing
Social Innovations have different financial needs than technological innovations. In this section you will find information about financing and funding options as well as key actors in the field.
Finding the right financing
There are numerous ways to finance your own projects and plans. It is important to understand which financial sources exist and are best suited to the project in question.
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Usually, the provider of a funding does not require repayment of the grant. Financing providers, however, invest with the intention of achieving financial returns, including interest. Common methods include various forms of loans or investments in company shares through equity financing.
- Federal states, federal government and European Union – public funding
Companies and organizations can apply for various public tenders. Tied to specific topics and purposes, these programs require certain project objectives (economic, social, sustainable).
- Support centers and incubators of universities – scholarships
Founders can apply for a start-up scholarship. Like public funding, only projects with certain objectives that are willing to participate in support and qualification programs are eligible for these scholarships. Support centers and incubators often offer support for the application process.
- Conventional banks / sustainable banks
Accessing loans from conventional banks poses a serious challenge for early-stage and non-commercial businesses as they are unable to demonstrate the creditworthiness of their company or because they don’t generate profit. Sustainable banks are more open to socio-ecological business and often have experience with sustainable projects. These banks could therefore be particularly interesting for socially innovative projects.
- State development institutions
State development banks grant low-interest loans at better conditions than conventional banks. With the so-called “house bank principle”, customers contact their house bank directly. For example, they submit a loan application which is then forwarded to the respective state development institute. Unlike conventional banks, state development institutions also have the option of granting non-repayable subsidies.
- Foundations
Foundations play a key role in funding social innovations. Many foundations usually focus on funding rather young ideas or already proven concepts that are funded on a project basis. From a non-profit perspective, foundations are allowed to donate their funds to other organizations if they are tax-privileged (i.e. non-profit).
Crowdinvesting is a type of crowdfunding in which small investors receive financial compensation in return for their investment, e.g. a stake in the company, future profits. However, no additional say in the company is granted in return
Crowdfunding is the pooled investment of many private small investors who have a common goal (often the financing of a start-up or project). Investors usually receive something in return for their investment, such as a finished product. Crowdfunding also offers the opportunity to generate initial public visibility for the company.
In equity financing, investors provide a company with financial resources in the form of equity and expect shares in the company in return, often with a say regarding the processes and direction of the company.
Loans are credits and are classified as borrowed capital for accounting purposes. They must be repaid to the lender over time, including interest. Banks are traditional lenders and often require a business plan for larger sums that demonstrates the company’s profitability. In addition, banks often require a guarantee or collateral, e.g. property.
Microloans are smaller amounts (often between EUR 5,000 and EUR 10,000) and help to get start-ups or limited financing projects off the ground. In most cases, however, higher interest rates are required than for larger promotional loans
Mezzanine capital is a hybrid form of debt and equity capital, where investors do not have any co-determination rights. Sub-forms include silent partnerships, convertible loans and subordinated loans.
Do you want to know more about our work?
Please reach out to finanzierung@sigu-plattform.de.