How to fund a business in Italy

Business funding solutions in Italy for foreigners

There are so many reasons to love Italy and this is why it attracts millions of visitors every year. People from all over the world come for the beautiful natural scenery and landscapes, the rich culture, the ancient monuments and sites, and of course, the delicious Italian food and wine. Consequently, the country also attracts foreign entrepreneurs interested in investing in property-based businesses such as hotels, sustainable tourism, bed and breakfasts, and holiday homes.
Often, foreign investors inquire about the financing options available to them. Is funding for hospitality businesses in Italy provided by Italian banks? And if so, what is the most efficient and cost-effective way to obtain financing?

Loans in Italy for foreigners: Why Is It Important to Fund a Company in Italy?

Having a potential winning business idea alone is not enough to ensure that the startupper has the useful tools to launch his or her venture. Without adequate funding, the idea is destined not to find the success it deserves. The biggest mistake is to think that funding will come on its own just because the idea is truly innovative.

In reality, however, funding a start-up is the biggest practical challenge an aspiring foreign entrepreneur faces when deciding to put his or her idea into practice. The challenges associated with finding financing is not only related to the start-up phase of a business: even companies already in business may need financing in the development stages, in order to expand their business.

Realizing an idea takes time and money. Development requires funds that often no startupper has available. Searching for the best sources of funding, therefore, becomes a key stage in the growth of a startup.

How to Finance an Italian Business: The Italian Banking Channel

The starting point is always the most classic source of financing, namely bank financing. In fact, one of the core businesses of lending institutions is to provide financing to individuals or businesses. Moving from theory to practice, however, is not easy.
Financing something that does not yet concretely exist represents a high-risk investment for a lending institution, as it is not possible to make a certain prediction about the success of the idea and thus of the start-up that will be created.

Italian Banks in such cases are reluctant to grant financing. They are only able to do so by asking in return:

• Collateral (mortgage on property owned), or
• Personal guarantees (sureties from creditworthy individuals).

The goal is to be adequately covered against the risk of the start-up becoming “insolvent.” Although things seem to be changing lately, some banking groups have adopted special financing designed for start-ups, but the situation for those about to apply for financing is still quite complex.

For those who want to take this channel to obtain financing it is important to pay attention to the interest rates charged by the various lending institutions.

This is why a prospective financial plan becomes essential to avoid finding themselves in situations of lack of liquidity. Another aspect to consider is related to the possibility of finding someone willing to put up collateral or personal guarantee for you. However, once the financing is obtained, the lending institution will have no control over how you use it to finance the start-up.

How to Finance an Italian Business: Facilitated Finance

When we talk about subsidized finance, we refer to all those initiatives, provided by public bodies (Italian state, Italian provinces, Italian regions, municipalities and the European Union), that provide grants at subsidized rates to businesses.

It is about financing that is not disbursed “haphazardly,” but rather to companies that have specific characteristics. Very often the provision of grants is also financed by private entities or institutions (foundations or cultural bodies). These bodies operate on the basis of special calls for proposals and put up cash prizes or contributions, for the best individuals or companies in certain areas or sectors.
The characteristics required to access these grants of subsidized finance are identified by the relevant calls for proposals and can cover different aspects, such as: the age of the startupper, gender, type of activity, and the territory on which it is carried out.

Advantages And Disadvantages Of Facilitated Finance

The advantage of this financing channel is definitely the one related to low interest rates. This means that the volume of money that the start-up will have to repay over time will be lower than with regular bank financing. Moreover, as with bank financing, control over the start-up’s activity remains fully in the hands of the startupper, who only has to worry about paying back the loan on time.

It is not easy to identify obvious disadvantages in subsidized finance as a financing tool for a start-up. Rather, the challenge may lie in the characteristics that a start-up must possess to access these calls, which are often very stringent. Again, the risk related to the need to obtain, in most cases, a bank guarantee in order to be eligible for this type of financing must be taken into account.

How to Fund an Italian Business: Venture Capital Companies

Venture capital firms aim to invest in companies in the early stages of their development and with high growth potential. Traditionally, venture capital firms ask for ownership shares in exchange for their funding. The idea behind venture capital is to bet on multiple projects, among which to unearth the successful one. However, generally, venture capitalists invest in start-ups operating in high-growth-potential sectors.

Once the start-up is as successful as hoped, the venture capital exits by selling its shares, naturally at a higher value than the purchase price, thus remunerating the investment made.

In practice, venture capitalists represent another form of non-institutional investors: these entities, usually corporations and investment funds, are looking for large profit margins in a relatively short period of time. Therefore, attracting their attention are highly innovative start-ups in the development and expansion phase. By contrast, those in the creation stage are rare.

Venture capitalists do not provide financing, but inject venture capital directly into the start-up: the most common method used is to raise capital by acquiring shares in it, which they will resell when it has appreciated enough to produce the expected return.

Advantages And Disadvantages Of Venture Capital

The advantage of this type of financing channel is that, if a start-up is attractive to a venture capitalist, that is, it has a project that promises large gains, it is possible to obtain financing even for very large sums that are higher than those offered by lending institutions. This, as venture capitalists are more likely to finance projects with a high level of risk. Financing that would probably not be financed by traditional channels.

The disadvantage of this financing channel is the power of control (determined by special agreements) over the management of the start-up itself, which the venture capital reserves for itself. This, so that it can intervene in case of management errors. The goal of venture capital is to make sure that the start-up succeeds, and so it wants to intervene in management to make sure that everything is running smoothly.

How to Fund an Italian Business: Crowdfunding

Crowdfunding denotes an innovative method of financing projects by a large number of investors (“crowd”) through monetary donations (“funding”) made through the Internet. It is a profoundly expanding reality in the world of the Web, consisting of groups of nonprofessional investors who pledge to support a project, or very often a start-up, endowed with a creative and innovative project, but lacking the funds necessary for its implementation.

Crowdfunding has certainly become one of the most popular channels for raising capital, especially projects related to applications or the Web world. The basic concept of this form of financing is relatively simple: there are several platforms (Kickstarter, Eppela, etc.) where you can showcase your project and, in case it is appreciated, collect resources funded by the supporters of the project.

The main methods of crowdfunding are: reward-base and equity-base. The first involves repaying one’s investors with a reward (which can be a product, an invitation, a thank you or any reward). The second involves a transfer of some ownership of the project to the investor, obviously in proportion to the capital invested.

How to Fund an Italian Business: The Bootstrap

The bootstrap indicates a process that succeeds in starting itself: it is metaphorically understood to indicate the process of self-sustainability that animates the spirit of the project. The overall goal here is to be able to make it on one’s own, without enlisting the help of others, using one’s own resources, however meager.

Seeking funding through this mode has the advantage of pushing the team to maximize its investments and put the focus on the truly urgent decision and thus concentrate on the market, customers, and product/service development.

While it enables the development of a greater sense of responsibility and priority from the outset, very few have the ability to self-fund. Thus the search for funds is triggered, often through the help of friends and relatives.

The advantage of this form of seeking funding is that there is no relationship with external entities, and thus the return from funding can be managed entirely independently. There is no management interference or particular deadlines to meet. Funding a small start-up with bootstrapping is possible-a good number of successful companies have started with a loan from friends and family. However, it is important to be aware about the pitfalls and burdens that can arise in difficult times. The risk of ruining personal relationships is high, as is the reward, however, should you succeed in increasing not only your own wealth, but also that of friends and family.

Why should I appoint ILF Italian corporate lawyers?

When it comes to launching a business in Italy, it is essential to navigate the legal landscape to ensure compliance with regulations and maximize success. Appointing ILF Italian corporate lawyers can be a strategic move, especially when it comes to securing funding for your business venture.

BOOK A FREE CONSULTATION WITH ILF BANK ATTORNEYS TO FINANCE YOUR STARTUP IN ITALY!

Expertise in Italian Corporate Law

Italian corporate law is a complex and highly regulated field. ILF skilled Italian corporate lawyers possess in-depth knowledge and understanding of the legal intricacies involved in business funding. They are well-versed in the applicable legislation, regulations, and practices necessary to structure a business and secure financing in Italy. Their expertise is invaluable in navigating through the complexities and ensuring compliance with all legal requirements.

Understanding the Italian Business Landscape

ILF corporate lawyers bring a comprehensive understanding of the local business landscape. They have insights into the market trends, competitive environment, and industry-specific legal considerations. This knowledge allows them to provide tailored advice and solutions based on the unique needs and goals of your business. By leveraging their expertise, you can gain a competitive edge in securing funding and establishing a strong foothold in the Italian market.

Establishing Credibility and Building Relationships

In Italy, building relationships is a crucial aspect of doing business. ILF corporate lawyers can help you establish credibility with potential investors and financiers. Their established network of contacts within the financial and legal sectors can prove invaluable in identifying suitable funding sources and connecting you with potential investors. ILF lawyers reputation and expertise can instill confidence in financiers, increasing the likelihood of securing the necessary funding for your business.

Structuring and Negotiating Funding Deals

One of the critical roles of an Italian corporate lawyer is to assist in structuring and negotiating funding deals. They will work closely with you to identify the most suitable financing options, whether it be bank loans, venture capital, angel investors, or crowdfunding. With their legal expertise, they can draft and review contracts, negotiate terms and conditions, and ensure that your interests are protected throughout the funding process. Their guidance can prove instrumental in achieving favorable financing agreements that align with your business objectives.

Ensuring Compliance and Mitigating Risks

Compliance with Italian regulations is vital for any business operating in the country. Failure to comply with legal requirements can lead to severe penalties and reputational damage. An experienced corporate lawyer will ensure that your funding activities are in full compliance with relevant laws and regulations, minimizing the risk of legal complications. They will conduct due diligence, identify potential risks, and provide guidance to mitigate those risks effectively.

Italy: mortgage rates

All foreign non-resident investors, both individuals and companies, are entitled to apply for a mortgage for the purchase of real estate intended for commercial use in the hospitality industry. Although there is no law which forbids foreign investors from getting a mortgage from an Italian bank, prospective buyers should be aware that Italian banks tend to be cautious in granting mortgage loans. There are several steps that can increase an investor’s chance of obtaining a mortgage or other types of financing. Having an advisor who understands the customs and red tape involved in getting a mortgage from an Italian bank and who has existing relationships with the banks, is crucial to your success.

Italy: loan interest rate and how to get it

There are two factors that greatly influence the probability of getting a loan:

1. being an Italian resident;
2. incorporating an Italian commercial entity.

Establishing or incorporating a company in Italy

Italian banks are traditional institutions, not commercial ones, and are careful when evaluating whether or not to grant a mortgage loan, and thus, are more inclined to grant these loans to residents. Consequently, it is highly advisable for foreign individuals or companies interested in buying property for commercial use in the hospitality industry to establish an Italian commercial entity. A company established with its legal headquarters in Italy (for example, an SRL, Limited Liability Company) is automatically an ‘Italian resident” (entity). The owner can then easily apply for a mortgage on behalf of the ‘resident’ company.

One benefit of incorporating a company in Italy is that the Italian government and Revenue Office offer incentives and special tax dispensations to foreign nationals who relocate or establish a business in Italy. For example, there are tax incentives for ‘attracting human capital in Italy’ for teachers and researchers who move to Italy, and incentive tax structures for new residents or high-net-worth foreigners who change their tax residence to Italy. In this regard, the Italian government grants tax benefits and administrative incentives for the establishment of innovative startups and may grant other benefits for companies created in specific locations.
There are several types of company structures available in Italy ranging from sole proprietorships to stock companies. Choosing which type depends on the investor and determining factors such as budget, liability and risk evaluation, size of the company, and number of employees.

In order to open a business in Italy, the administrator must register with the Business Register (Registro delle Imprese) managed by the Chamber of Commerce (Camera di Commercio) in charge of the area where the business is located. Registration in the Business Register is compulsory for all investors who aim to:

• produce goods and/or service of goods and services
• act as mediators in the distribution of merchandise
• provide transportation (for people and/or goods)
• operate in financial activities such as banking and insurance provision
• operate in the agricultural field (optional under a certain output)

The hospitality business

Operating a hospitality business is providing a service and therefore must be listed in the Business Register.
In addition to registration in the Italian Business Register, company incorporation procedures also include:

• issuing and assembling the company regulatory articles of and memorandum;
• executing the articles before a public notary;
• applying for an Italian tax code (Codice Fiscale);
• opening an Italian bank account;
• registering for a VAT number (Partita IVA).

Company Structure

Once the company structure has been decided and the above steps have been initiated, the owner(s) is required to begin the company formation process.
The main documents necessary to incorporate a commercial entity in Italy are:

1. Identification documents of the shareholders/final beneficiaries;
2. Evidence of the source of financing for the incorporation of the commercial entity in Italy (Balance Sheet/Tax Return);
3. Proof of headquarters – evidence of the Italian location of the head office.

Business Plan: Why Is It Essential to fund an Italian Company?

Whatever method or methods you have chosen to finance your business idea and thus your start-up, the goal must be to make the potential investor, be it a bank, venture capital, rather than an entity, aware right away what your business model is. They need to be able to understand why your idea is different from others, who it will appeal to and in what market. You will only have a few minutes to do this, so two tools will be indispensable:

1. The sales pitch;
2. The business plan.

The Sales Pitch

The sales pitch is a presentation in which you highlight, concisely and with great communicative emphasis, the key aspects that will be detailed in the business plan. Specifically:

• The idea, the value proposition;
• The business model;
• The goals, ambitions and competencies involved are the elements to focus on.

This tool must have a high communication value as it has the stated goal of convincing and engaging potential parties to invest in one’s business initiative. Once the potential investor has successfully evaluated this document he or she will be enticed to go and read the business plan.

The Business Plan

In turn, the business plan is critical. It is a tool that must be able to encapsulate within it a detailed picture of:

1. How the start-up organizes itself,
2. How it differentiates itself and positions itself in the marketplace.

The areas of detail involve the description of the company and the product/service to be developed, market analysis and marketing plan, competitive advantage and risk analysis, management organization and skills involved. Finally, cost estimation and business plan cannot be forgotten in the business plan.

Mortgage application for companies

Once the company is established, its legal representative may immediately submit a mortgage application to an Italian financial institution. The mortgage company will require the following documents:

• The extract of the Italian commercial entity’s corporate registry, as issued by the competent local Italian Chamber of Commerce;
• The extract of the foreign mother company’s corporate registry (if applicable, i.e. if the Italian company has been incorporated by a foreign undertaking);
• The official Business Plan, proving that the commercial scheme is unquestionably sustainable under Italian financial standards. Presenting a well-drafted, accurate, and convincing Business Plan is absolutely crucial in your application being accepted.

Launching a new business or opening a branch of a foreign company in Italy has legal, fiscal, and bureaucratic requirements which are sure to encounter complications. On the upside, there are profitable contingencies and breaks available to prospective entrepreneurs and corporations. The key to proceeding flawlessly and efficiently is having skilled, reliable, and straightforward professionals who are on-site and are knowledgeable of and experienced with Italian bureaucracy.

OUR SERVICES
Our team of highly-skilled lawyers, brokers, accountants, and real estate developers assist foreign investors through all phases of company incorporation and financing requests. We guarantee professional service, reliable advice, and practiced assistance every step of the way.

Business funding solutions: what we can provide to help you start your company in Italy

• Preliminary evaluation of the investment’s financial sustainability;
• Commercial property research and assistance in finding the most suitable property to purchase;
• Assistance with the incorporation of the Italian branch, comprising collection of the necessary documents, translation into Italian, legalization by apostille, opening of a bank account, dealing with VISA issues when and if required;
• Expertise on how to get a loan in Italy and what are the best Italian banks;
• Assistance with the preparation of the mortgage applications at multiple Italian banks;
• Experienced follow-up with drafting of the necessary business plan;
• Dealing with potential problems in terms of transfer pricing, movement of funds, and any additional problems that may arise.

 

 

 

The contents of this page should not be taken as an authoritative statement of Italian law and practice. Neither the author nor the publisher are responsible for the results of actions taken on the basis of information contained in this summary, nor for any errors or omissions. This text is not intended to render legal, accounting or tax advice. Readers are encouraged to seek professional advice concerning specific matters before making any decision.