Funding growth: loans, asset finance, invoice finance and equity compared
The right funding depends on what it is for. A guide to the main options, what each costs you, and the tax reliefs that make equity easier to raise.
Businesses usually borrow too late and for the wrong thing. The best time to arrange funding is before you need it, and the best kind is the one whose term and security match what the money will do.
Debt and equity
- Overdraft: short gaps in cash
- Term loan: a project or acquisition
- Asset finance: vehicles and equipment
- Invoice finance: cash tied up in debtors
- Angel investors and friends
- Venture capital for fast growth
- Crowdfunding for consumer brands
- Reliefs for investors through SEIS and EIS
Tax reliefs for investors
The Seed Enterprise Investment Scheme lets a young company with fewer than 25 employees and gross assets of no more than £350,000 raise up to £250,000. The Enterprise Investment Scheme covers larger raises: most companies can raise up to £10 million in any 12 months and £24 million over their lifetime from the venture capital schemes combined, with higher limits for knowledge-intensive companies. Investors receive income tax relief, which makes the shares easier to sell. Advance assurance from HMRC reassures investors before they commit.
Before you ask
- Up-to-date management accounts and a 13-week cash forecast.
- A clear plan for what the money will do, and how it will be repaid or rewarded.
- A view of what the business can afford if things go slower than planned.
Sources
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This insight is general information, not advice for your circumstances. Talk to us before acting on it.