Debt & Equity Funding

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Debt & Equity Funding

Debt comes in many forms but generally involves borrowing a sum of money, which is often secured against a tangible asset. The debt is repaid with interest at an agreed future date. Ideally your business should have a financial track record to secure debt. You also need be able to demonstrate that you can repay the money borrowed. Debt is often a cost-efficient way of getting the finance you need for the short to medium term. The cost of using debt depends on the interest rate and the length of the loan (plus any arrangement fees that some lenders charge). After you've paid the interest and repaid the principal, the debt financing will no longer cost your business money - a key difference from equity finance. Debt providers will only intervene if you fail to make agreed payments of capital or interest, or breach any terms and conditions.

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Equity financing is the process of raising capital through the sale of shares. Companies raise money because they might have a short-term need to pay bills, or they might have a long-term goal and require funds to invest in their growth. Equity investors generally have an ongoing say in how your business is run. You'll need to make your repayments on time and keep all terms and conditions.

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