How to inject personal money into your Finnish limited company: Shareholder loan, SVOP investment or share issue?
Many entrepreneurs reach a point where their company needs additional funding. Whether you're covering startup costs, improving cash flow, financing growth, or strengthening the balance sheet, one question often arises: what is the most sensible way to put your own money into a Finnish limited company (Oy)?
FUNDING BUSINESS
The answer depends on your objectives. Do you want the flexibility to get the money back later? Are you looking to strengthen the company's equity position? Or would you like to increase future dividend opportunities?
In Finland, business owners commonly choose between a shareholder loan, subordinated loan (pääomalaina), SVOP investment, or a share issue. Each option has different accounting, tax, and practical implications that should be carefully considered before making a decision.
Shareholder loan: the simplest funding option
A shareholder can lend money directly to their limited company. The loan is recorded as a liability on the company's balance sheet and does not affect ownership percentages.
For many small businesses, this is the quickest and simplest way to provide additional funding.
Benefits
Quick and easy to arrange
No changes to ownership structure
Typically no shareholder meeting decisions or registrations required
Flexible repayment when the company has sufficient funds
Suitable for short-term financing needs
Drawbacks
Does not strengthen the company's equity
Does not increase the company's net assets
Does not improve future dividend-paying potential
Repayment depends on the company's ability to pay
Interest
Interest is not mandatory. If interest is charged, it should generally be based on market terms.
Best suited for
A shareholder loan is often the most suitable option when a company needs temporary funding and the owner expects the funds to be repaid in the future.
Subordinated loan (pääomalaina): strengthening the balance sheet while retaining flexibility
A subordinated loan is a special type of financing governed by Chapter 12 of the Finnish Limited Liability Companies Act. To qualify as a subordinated loan, the loan must meet the specific conditions set out in the legislation. These conditions affect, among other things, the repayment of the loan and the payment of interest, which are subordinated to the claims of the company's other creditors.
Although it remains debt in the company's balance sheet, it may help strengthen the company's financial position and, in certain situations, support the company's equity position.
Benefits
Can help improve a weak equity position
May help avoid a negative equity situation
May be easier to recover than an SVOP investment
Interest payments may be possible
No changes to ownership percentages
Drawbacks
A written agreement is required
Repayment is restricted by law
The loan ranks behind other company debts
Interest payments are subject to restrictions
Does not increase net assets for dividend purposes
Interest
Interest is optional. However, interest may only be paid if the company has sufficient distributable funds and the legal conditions are met.
Best suited for
A subordinated loan may be appropriate when the company needs stronger equity temporarily, but the shareholder wants to preserve the possibility of receiving repayment later.
SVOP investment: strengthening equity and future dividend potential
An SVOP investment is a contribution to the company's invested unrestricted equity reserve. Unlike a loan, the funds become part of the company's equity. No new shares are issued, and ownership percentages remain unchanged. For many growth-oriented businesses, this is one of the most attractive ways to strengthen the balance sheet.
Benefits
Relatively simple to implement
Strengthens the company's equity
Increases net assets
May increase net assets and, depending on the company’s overall situation and the tax rules applicable to the period, may improve the scope for lightly taxed dividends.
Does not dilute ownership
Drawbacks
Returning the funds later can be administratively more complex
Requires careful documentation and accounting records
Tax treatment of repayments requires planning
Company law formalities must be followed
Additional considerations apply when there are multiple shareholders
Interest
No interest applies because an SVOP contribution is not a loan.
Best suited for
An SVOP investment is often suitable when the goal is long-term balance sheet strengthening and increasing the company's future financial flexibility.
Share issue: increasing capital through new shares
Another option is to invest money into the company through a share issue. In this case, the shareholder subscribes for new shares and contributes capital to the company. The contribution strengthens the company's equity and may increase the investor's ownership stake.
Benefits
Strengthens the company's equity position
Increases net assets
Suitable when bringing in new shareholders or investors
Can improve credibility with lenders and business partners
Supports long-term growth plans
Drawbacks
Requires formal company decisions
Registration procedures may apply
Ownership percentages may change
The investment is generally permanent
Funds cannot simply be repaid like a loan
Interest
No interest applies because this is an equity investment rather than a loan.
Best suited for
A share issue can be useful when permanent capital is needed or when the company wants to bring in new shareholders.
Other ways to strengthen your company's finances
Leaving profits in the company
Sometimes the simplest solution is not withdrawing all available profits as salary or dividends.
Leaving funds in the company can improve liquidity and strengthen its financial position, although it is not considered a formal shareholder investment.
Converting an existing loan into equity
An existing shareholder loan can sometimes be converted into an SVOP investment or another form of equity contribution. This can be an effective way to improve the company's balance sheet without transferring additional cash into the business. However, proper documentation and corporate decisions are always required.
SVOP investment vs subordinated loan
Many entrepreneurs compare these two alternatives because both can strengthen a company's financial position.
Consider choosing an SVOP investment if:
You want to strengthen equity permanently
Increasing net assets is important
Future dividend planning is part of your strategy
Immediate repayment is not a priority
Consider choosing a subordinated loan if:
You may want the money back later
Flexibility is important
You would like the possibility of earning interest
The additional capital may only be required temporarily
In simple terms, an SVOP investment focuses on building long-term company value, while a subordinated loan offers greater flexibility for the shareholder.
Quick comparison
Shareholder loan
Best for: Temporary funding needs and straightforward repayment.
Subordinated loan
Best for: Strengthening a weak balance sheet while maintaining a debt relationship.
SVOP investment
Best for: Long-term capital strengthening and increasing future dividend potential.
Share issue
Best for: Permanent capital increases and bringing in new investors or owners.
Loan conversion
Best for: Improving equity without injecting additional cash into the company.
Which option is right for your company?
There is no universal solution. The most appropriate option depends on several factors, including:
Whether the funding is temporary or permanent
Whether repayment flexibility is important
Whether increasing future dividend opportunities is a priority
The company's current financial position
The number of shareholders involved
Tax and accounting considerations
Choosing the wrong funding method can create unnecessary administrative work, limit future flexibility, or lead to less favourable tax outcomes.
Our thoughts on the topic
When funding your own Finnish limited company, it is important to consider both your immediate needs and your long-term objectives.
A shareholder loan is often the simplest option for temporary financing. A subordinated loan can strengthen a company's financial position while preserving repayment flexibility. An SVOP investment is frequently attractive when the goal is to strengthen equity and increase future dividend opportunities. A share issue may be appropriate when the company requires permanent capital or plans to bring in additional shareholders.
The right choice depends on your company's circumstances and your goals as an entrepreneur.
Need help with accounting?
At Accelta, we help English-speaking entrepreneurs and small business owners understand the accounting, tax, and practical implications of funding a Finnish limited company.
Whether you are considering a shareholder loan, subordinated loan, SVOP investment, share issue, or loan conversion, we can help you evaluate the alternatives.
Need advice in clear English? Contact Accelta!
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