The legal framework which pertains to raising finances in Sweden is a complex one. The relevant restrictions are contained in a series of laws and rules issued by regulatory bodies. Central to the framework for limited companies are the Swedish Companies Act and related legislation.

Bank finance is the most common source for external capital for businesses in Sweden. The most common types of financing are overdrafts and fixed term loans. When it comes to security, Swedish law recognises the concept of a “floating charge”. This is a device for giving the bank security over assets such as stock in trade, machinery, inventory and accounts receivable without restricting the company’s ability to deal with and dispose of those assets as long as it remains solvent and is not in breach of the loan agreement. Other forms of security required by a bank could be a fixed charge over real estate, a pledge of shares or a guarantee from a person or another company.

The creditor’s priority in case of the debtor’s insolvency is governed in the Right of Priority Act. In order to facilitate business reorganisations, the act has recently been amended. The new Right of Priority Act became effective January 1, 2004. Perhaps the most significant, and debated, amendments to the act were the supplier’s position in the debtor’s insolvency being improved at the expense of the holders of a floating charge. Since the banks are often holders of such a floating charge, the new regulation has resulted in banks being more cautious in their lending. Today they often demand additional security for the floating charge.

When acquiring expensive assets a company can spread out the cost for the new assets. This can be done by a hire-purchase/conditional sale agreement or a leasing agreement. The company can then pay for the assets over a longer period of time using its revenue. Through the agreement the finance company retains legal ownership of the assets in question. This usually gives the finance company a better security than other creditors. As a result, the finance company may be able to offer better terms. Does the equipment used by the business need to be exchanged on an irregular basis? Or is there a risk that the equipment will need to be exchanged before the time set out in the agreement? Then a hire-purchase/conditional sale is more suitable for the business than a lease agreement which is normally fixed over a longer period of time.