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Introduction to this document

Raising additional finance summary

When your company needs additional finance, what are your options? Our summary takes a look at the pros and cons of debt and equity finance.

Do your homework

The key to finding the right additional finance for your company is to know what your business needs and what it might qualify for. If you are borrowing from a bank, the application process can be long and detailed, so you will need to have your financial information and business plan in order. Banks can offer better interest rates than alternative lenders, making it worth the effort. If your credit rating is not good or you do not have a long trading history, banks are likely to be reluctant to lend to you. However, there are alternatives out there, for example schemes like government start-up loans (for those in the first two years of trading) and small business grants, as well as more flexible lenders, e.g. family and friends, online lenders.

It may be that investment is the way to go instead. This avoids the risks associated with borrowing, but usually involves giving the investor a stake in the company, so think carefully about how much control of your company you are willing to give up. There are often conditions attached to the investment, for example targets to hit where the investment is made in stages, or restrictions placed on the company while the investor is involved. On the flip side, your company benefits from a cash injection and many professional investors have additional expertise to offer.

Debt, equity or something in between?

Our summary explains how debt and equity finance work and goes through the respective pros and cons of each. It also looks at the commercial alternatives, such as leasing arrangements and invoice discounting, as well as how debt and equity financing arrangements can be combined.