Everything you need to know about external finance

The good news for entrepreneurs is that there are a wealth of finance options out there to help grow a business. We tackle your burning questions, so you can make an informed decision about your funding future.

Q: What’s the difference between equity and debt?

Equity finance means you sell a share of your business, whilst debt finance means you borrow money from a lender who needs to be repaid.

Q: What are the different types of equity and debt finance?

Types of equity finance include Angel Investment, Corporate Venture CapitalEquity Crowdfunding, Expansion Capital, Initial Public Offering (IPO), Private Equity and Venture Capital.

 

Types of debt finance include Asset-Based Lending, Leasing & Hire Purchase, Business Loans, Debt Funds, Export Finance, Invoice Finance, Overdrafts, Peer-to-Peer Lending and Start-Up Loans.

 

Each option has different pros and cons. You can read our guides on each of these to find out about them in more detail.

Q: Is equity or debt right for me?

Choosing between equity and debt is a really important decision for how you want to grow your business. Your suitability will depend on a few factors, including:

  • 1
    Your attitude to ownership Some business owners don’t want to give away a share of ownership in their business and that’s fine. It just means that equity investment is off the table.

  • 2
    Your growth ambitions Business owners need to evaluate their growth potential. Equity investors look for significant growth across the investment period because that’s how they make money. Debt lenders however don’t mind if the business grows or not – so long as the money and interest is repaid.

  • 3
    How long you need the finance for Equity finance suits businesses with big growth ambitions over the long-term, whilst debt can help businesses borrow money over the short-term.

     

    This is not an exhaustive list. Other factors, including the type, size and sector of the business in question, are also likely to affect your suitability.

     

Q: How do I choose a finance option?

Once you’ve decided whether equity or debt is right for you, there are a few more considerations that can help you find suitable finance options:

  • 1

    Your business ambitions

    Sometimes, there’s a finance option that perfectly suits your goals. For example, Export Finance is specifically for businesses who want to expand into new international markets.
  • 2

    How much money you need to borrow

    Equity investors can offer anything from £15k to £100m, depending on the business plan and equity share. Debt lenders can offer anything from a few thousand pounds up to millions of pounds, depending on the provider and business plan.
  • 3

    Terms of the finance

    For equity finance, this might include things like how much of a share in your business you’re willing to give up and the duration of finance. For debt finance, you need to consider repayment period and interest rates.

Finance Your Growth has been built to help businesses identify suitable finance options through our finance finder and the guides we have created with our partners.

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Q: When will I be expected to sell a share of my business?

Equity finance means that you sell a share of your business to your investor. An investor will take a share, based on your business value and the amount of money you are asking for in return.

 

However, the decision of how much equity you give up is ultimately yours. Never give away more than you want to – especially in the early stages of a business when it’s important to stay incentivised.

Q: What do I need to do before I start the process?

The first stage is to evaluate your business honestly. You need to understand what your growth potential is, how achievable your ambitions are, as well as the intricacies of your valuation and business plan.

 

The next stage is to understand the finance landscape. With information about your business and needs in mind, you can work out what might be a good fit and what might not.

 

Finally, it’s often worth speaking to a trusted adviser or mentor. If you don’t have one, speak to like-minded businesses who have applied for the kind of funding you’re interested in. You can find people at networking events or even find them as case studies on investor websites. Often, entrepreneurs are happy to chat over a coffee or lunch.

Q: How much finance can I get?

It depends on the type of finance, the lender and your business. There are finance options for a few thousand pounds, right up to hundreds of millions.

 

Just remember to be realistic when speaking to investors and lenders, and be ready to back up any financial information, like your company valuation or how much funding you need.

Q: Who can I talk to if I have a question?

Want to explore finance options for your business?

You can with our quick six-step tool

Find my business
finance options