Alternative tools for financing business growth

Romanian market players need to enable the growth of their businesses to a next level by exploring more alternative financing tools.

While interacting with various Romanian businesses either as lawyers or as financial advisors (common examples being while performing a due diligence investigation or when structuring a M&A transaction or a business restructuring/turnaround) we have often had the chance to see what tools the Romanian companies are generally relying on for financing their business.

Traditionally, Romanians are using shareholder loans or bank credits (which have become more and more sophisticated in the last years) for financing the development of their businesses, when the funds generated by their own activity prove to be insufficient. On an exceptional basis and more recently at a relatively larger scale, one can see various companies whose growth has been financed by using EU funds.

Although the economic crisis, which is pleasantly regarded by more and more reliable persons as already passed, showed the limits of the traditional ways, the Romanian market still seems to be, for various reasons, rather closed to alternative financing tools. When the banks ceased to lend money and the shareholders (for the lucky businesses which had wealthy shareholders with enough money to support their growth) decided to use their funds in order to ensure the stability of their own affairs, most of the Romanian businesses stopped their growth or went into insolvency/ bankruptcy, even when the business perspective was obviously already there.

We won’t elaborate here on all the reasons which, in our opinion, determined the current state of facts. However, we find these clear signs of a still non-mature market.

Since our experience also revealed a certain lack of adequate knowledge on the alternative financing tools, we briefly outline hereafter certain information regarding several of the most common alternative financing tools.


There are three main categories of alternative financing tools:

  • capital markets (attracting public funds/ investments in the business),
  • private funds/private investors (they can be either private equity funds, angel investors or mezzanine lenders), and
  • non-reimbursable funds (state aid and EU funds).

Capital markets

The capital markets term as such is very familiar to any Romanian which has the smallest connection with the business environment. Still, the figures show that  this is regarded just on a very exceptional basis as a solution for financing one’s business in Romania.

This might be either due to

  • the relatively complicated listing mechanism, involving a lot of criteria to be matched by one company in order to be listed on the Bucharest Stock Exchange Market (Bursa de Valori Bucuresti) combined with a lack of information thereof or to
  • the reduced market liquidity which led to certain failures in the past.

The Bucharest Stock Exchange devoted a lot of efforts in the last years to improve the above from all perspectives, the opening of the AERO Market being just one of the good examples in this regard, and we hope to see a very positive outcome of these efforts on a short to medium term.

In addition, the solid Romanian companies should be aware that they have the possibility to be listed not only on the Bucharest Stock Exchange Market, but also on the London, Warsaw, Prague and, why not, New York, Singapore or Hong Kong markets.

Private funds/ Private investors
Romanian entrepreneurs have a general tendency of not even considering the Romanian entrepreneurs have a general tendency of not even considering the possibility to ever sell their businesses. It is a pattern to see the sons and/ or daughters of the entrepreneurs involved in the business from an early age or, when the heirs are not around or willing to take over the business, businesses really disappearing when the one man show entrepreneur gives up. 


However, attracting a private investor in your company does not necessarily mean that you have sold your baby and you should retreat somewhere on a beach. 


There are very good examples (and we are not talking about the United States or UK, only, but also about what we have seen here, in Romania, while acting either for the investors or for entrepreneurs) of companies which, either in their incipient stages or in an advanced one, have recurred to private investors, being them either private equity funds or angel investors or mezzanine lenders, to finance the growth of their businesses and are now enjoying a great and stable market position.

It is the mere purpose of these investors to invest in one business, to help it grow and then to exit it when the right moment comes by:

  • selling their shares either to a third party (together with the entrepreneurs, to the extent the transaction is negotiated as such) (another private investor or a strategic buyer) or, more conveniently for many Romanian entrepreneurs
  • back to the entrepreneurs, who in the meantime reached a position that allows them to finance their business on its own or are willing to take the advantages of a business that has been stabilized during the period when the investors were there.

Furthermore, although there are cases when a private equity fund aims to acquire 100% of one business or, in any case, at least a controlling position, dealing with a private equity fund does not generally mean that you have to entirely sell your business or even to give up the control over it. Moreover, acquiring a minority position is a rule for angel investors and mezzanine lenders (in their case provided that they invest in equity).

And it is not just about money. A significant part of the investors are very much focussed on bringing management skills, industry knowledge, production knowhow, business connections to the company they invest in. They bring a completely new perspective to your business (through their own personnel or through different industry specialists they temporarily hire), which can enhance your business competitiveness, sales, etc.



There are, of course, also some disadvantages. For example:

  • it is clear that an investor would more (for the case of the private equity funds) or less (for the case of an angel investor or a mezzanine) interfere with the management of your business and you won’t be able to decide entirely on your own all the time.
  • it might that at a certain moment your interest would be to rather cool down a bit and enjoy a certain market position which is not necessarily the one of market leader, but they will push and push so that you exceed your limits and have a higher and higher EBIDTA.

Notwithstanding all the above, our opinion is that you should not be scared of all these. You should only consider them and choose the right moment to join forces with these business growing sharks who will be so much focused on enlarging all your positive financial figures that might help you exceed some boundaries you would never be able to exceed on your own – do it when you are ready and when you have similar objectives with theirs.


State Aid
Knowing that the allocation of EU funds in Romania is not yet a success, we will focus here on one of the functional nonreimbursable financing tools available now in Romania – state aid.

The last 6 years is a period long enough to conclude that state aid has been one of the most effective and efficient financing tool within the Romanian authorities. Romania is already at the second edition of state aid schemes, the first edition having been successfully completed in June 2014. The first wave of projects financed by state aid can be summed up by having more than 60 investment projects approved, with a total value over EUR 3 billion which are to generate more than 25,000 new workplaces. The funds’ absorption rate also proves the success of the past schemes: 99% in case of the scheme for hiring new employees, more than 50% in case of the scheme for medium and large investments and 19% in case of the scheme for very high investments. All these figures show the real intention of the authorities to stimulate the projects with a major impact on economy, so that to create new workplaces and support the investments which bring added value by their implementation.



The distribution of state aid funds was especially directed towards foreign capital companies activating in industry, production or services, while local entrepreneurs preferred less capital intensive investments which qualified for state aid to a lesser extent. According to the representatives of the Ministry of Public Finances, high importance is given to projects that assume know-how transfer, implementation of modern technologies or creation of innovative products. From this perspective, with small exceptions, the majority of the activity sectors are eligible for state aid, with some fields being highly appreciated by authorities.


For the next period, the Government seems to continue its undertaking to finance the viable investment projects by having launched two new state aid schemes which will be valid for the period 2014- 2020. Thus, the scheme introduced by Government Decision no. 807/2014 finances the investments in assets, whereas the scheme introduced by Government Decision no. 332/2014 finances the salary costs for projects focusing more on creation of workplaces rather than on investments in assets. The investors may benefit from similar conditions as in the past, namely a refund of up to 50% of the assets costs or of the salary costs for a period of 2 consecutive years.

The main eligibility criteria which have to be fulfilled by companies in order to benefit from these non-refundable funds are: minimum value of the investment of EUR 10 million for the scheme financing the assets and the creation of a minimum number of 10 workplaces for the scheme financing the salary costs. 

The total budget valid for this second wave of state aid amounts to EUR 1.2 billion (EUR 600 million for each of the two schemes), the applying companies being treated according to the principle 'First-Come, First-Served'. Although no allocation of this budget according to the regions has taken place, the authorities encourage the investments in the less developed regions of the country and this can be noticed by the different percentages of eligible costs to be financed by state aid.


The percentages of around 50% state aid, as presented in the chart on the left, show a great victory of the Romanian authorities in convincing the European Commission to still keep these high financing quota for state aid. Considering the whole Central and Eastern Region, Romania is the leader in state aid financing, most of our neighbours being accepted in average for 20-30% state aid.

The first half of the year 2015 proved again the good intention of the Romanian authorities, a total of 8 projects being already approved for state aid of approx. EUR 38.5 million. Moreover, the state aid applications already submitted at the Ministry of Finance by companies investing in assets have just exceeded the budget of EUR 100 million allocated for 2015. Once again, the interest of the companies for state aid is booming. After having analysed the current state aid applications, the Romanian authorities will open the door for placing again applications during the second part of 2015 for the money which has not been allocated yet.


The mechanism of granting state aid implies a winning position both for the Romanian State and for the beneficiaries using these funds. If the benefit is obvious for the companies, these receiving in cash a part of the performed investment or the incurred salary costs, for the State the advantages materialise in employer and employee contributions, profit tax as well as local charges being paid into the consolidated general state budget. This implies that, in an average period of 7 years, the granted state aid shall come back to the budget in the form of contributions. Furthermore, these investment projects have a multiplying effect on the national economy, generating thus additional investments, workplaces and additional contributions paid to the state budget. From this point of view, the state aid can be regarded as an investment which the State makes for the future and is expected to be recovered in the next period through collection of taxes paid to the central budget.

The political and economic perspectives for Romania in the next 7 years at least show that state aid will remain an essential instrument from two sides: for the Romanian Government for attracting private investments on a large variety of sectors and for investors as a viable source of financing either new opportunities or increasing their actual presence. In this context, companies may easily take advantage of this free source of financing and use it efficiently in addition to their own resources.