When the time is right to put money into your business, there are multiple options you can go for, whether online or through a private investor, a small amount from family and friends or a six figure sum.
But one of the first decisions to make is whether to opt for debt or equity. This decision is crucial for the future of your company and really affects the course of the decisions you make down the line. In this piece, we put forward the case for debt.
There are many advantages to debt finance, which is the borrowing of money to be repaid plus interest. The most clear one is that you can retain full ownership of your company, a situation that is not an option for equity finance, where you will need to give away a percentage in exchange for the money.
Chris Maule, CEO and founder of UK Bond Network says that debt finance is a popular funding option because of the freedom this situation affords a business owner.
‘This is in stark contrast to equity finance where investors essentially become owners of the business potentially leading to a loss of autonomy for the existing business owner – depending, of course, on how much equity is given away.’
‘In addition, debt financing enables a business to avoid equity dilution, enhancing the potential value for existing shareholders.
Debt financing is therefore often more positively received by the market and provides support to a company’s share price,’ he adds.
Taking on debt can also be cheaper in the long run than the time and consulting fees involved in selling equity in a company.
No burden of shareholders
Now, think about the administrative burden of keeping investors in touch with the company’s progress, having to hold shareholder meetings, and having to seek the vote of shareholders in certain situations. All of these things are avoided if you have just have a loan to pay back.
Furthermore, the interest obligations you will have as a business owner are known amounts, which can easily be forecasted and planned for.
There is also the upside that committing to the repayment of a loan also generates credit worthiness for the business, says Bradley Mcloughlin of Braant Accounting says.
‘This can be helpful, in particular, with product-based companies seeking credit terms from their suppliers,’ he adds.
Of course, debt funding can take the form of a bank loan, a government backed Start Up Loan, or a Business Enterprise Fund loan, to name a few.
But in this day and age, many companies are choosing to go down the online route, where fierce competition means reasonable terms for their loan.
An online choice
A strong option for online debt is ezbob. In March, and in conjunction with its partner company Everline, ezbob announced it has provided over £100 million in funding to UK SMEs since launch in 2012.
The London-based Fintech start-up has almost doubled the amount it has lent to small businesses in the last 12 months and has now provided more than 8,500 loans to help SMEs and sole traders access finance to achieve growth plans or simply supplement cash flow.
Related: Small business startup funding