Contrary to popular opinion, there are a number of ways banks can meet your professional needs – especially if you are looking to grow your business – whether in Luxembourg or abroad. So what are they and how do they work? Here is a brief overview of the primary financing solutions offered by financial institutions.
Investment loans can be used to obtain mid- or long-term financing for long-term investments in moveable property or real estate, for the purposes of creating, improving or expanding a business activity. In other words, this property could just as easily be land or industrial premises, production tooling, machinery, vehicles or intangibles such as goodwill, software, patents or licences.
The main advantage of an investment loan is its flexibility. It offers a wide range of options for the borrower. The loan maturity – which cannot be less than three years – will vary based on the life of the property that it will be used to finance. In theory, there are no limits to the loan amounts. Repayment is flexible based on what is being financed and your cash flow requirements. Depending on how the project progresses, the loan can be received as a lump sum or drawn in several instalments. In the latter case, the payment terms and interest apply only to the amount of the loan actually used.
Most banks in Luxembourg will pass on applications for equipment loans to the SNCI (Société Nationale de Crédit d’Investissement – National Investment Credit Association). Subject to certain requirements, equipment loans are a means of getting joint financing from the bank, at very attractive fixed rates, for depreciable tangible assets and amortisable intangible assets, and for buying land to be used exclusively for business purposes. These loans may not be used to finance any parts of buildings used for non-business purposes, rolling stock (vehicles) or inventories of raw materials or finished goods. An equipment loan may be granted for up to 25-60 percent of the eligible cost of investment, or up to 75 percent for a company’s first premises!
 The fixed rate for equipment loans is currently 1 percent. This is a net rate with no additional commissions or fees.
This is a cash flow loan whereby your bank authorises you to have a negative balance in your company’s current account. The minimum amount is €125,000 and the time frame is theoretically unlimited. In certain cases, a maturity date may be established. You may use the funds at any time without providing supporting documents, and repayment of the sums debited is entirely at will. Interest is calculated based on a variable rate and is collected every three months.
Just like a fixed-term advance (except that the latter involves a set amount and at a fixed maturity and interest rate), cash credit will help you finance your operating cycle as well as your working capital requirements.
If your company operates abroad, you can secure all of your import/export transactions via a letter of credit. With an export letter of credit, your bank guarantees you payment for goods if you can provide proof of shipment. With an import letter of credit, your bank agrees to pay your supplier once the merchandise has been shipped.
You can access this form of financing by the SNCI through your bank if it signed the Special Terms and Conditions governing the Anti-Crisis Indirect Development Loan. Several conditions must be met. Your business must be soundly managed – meaning it has never had prior financial difficulties – and be experiencing temporary cash flow problems as a result of exceptional financing needs caused by the crisis situation. Your bank, which plays an intermediary role, will conduct the analysis necessary to verify these exceptional financing needs and, based on the results, will agree to provide financing in conjunction with the SNCI or not.
The amount may be no less than €12,500 and no more than €10,000,000. The SNCI’s share can reach 60 percent of the exceptional financing need, provided that the remaining 40 percent is covered by the intermediary Bank. The maximum repayment term may not exceed five years. Be advised that this loan has a statute of limitations! It is only valid for loans granted through 31 December 2021 and the request must be submitted by 30 November 2021.
 Such is the case for ING Luxembourg.
To learn more about our custom financing solutions, see our Business Banking page.
Of all the types of leasing available in Luxembourg, financial leasing is undoubtedly the one that best suits any company seeking to optimise its investments. But how does financial leasing work and how can it help your company to expand on a daily basis?