Is equity finance or debt finance more suitable for my business?

 

When your business is expanding you will need to decide how to fund any major investments. For example, if you are purchasing new facilities or major equipment, or entering into new markets, you will need to outlay a significant amount of money. It is advisable to consider your financial options long before the time comes to decide, as then you will be aware of your options and what funding method to choose. Speak to a commercial solicitor throughout the process to ensure your chosen financing method is legally as well as financially sound.

The main two options of funding you will need to discuss with your commercial solicitor are equity financing and debt financing. The two different types of financing options have very different features and substantially different advantages and disadvantages. Whilst no one method is superior or otherwise to the other, there are certainly some types of financing that are more suited to particular businesses or projects. The right choice of financing depends on a range of factors which your commercial solicitor will consider carefully.

Debt finance

This is the most traditional method of financing business expansion. As with all types of traditional debt borrowing, debt financing involves borrowing an amount of money at set repayments of the capital amount, plus interest, over a set period of time. Debt financing has the advantages of not giving away any ownership or power over your business, other than is temporarily secured by the deed or loan agreement under which the money was raised.

Equity finance

Equity finance is  complex and becoming more and more common in the UK and abroad. Equity financing involves raising money from investors in exchange for a share in the ownership of the business. Unlike debt financing, the business is typically not under any fixed obligation to repay the debts on terms. Instead, the finance providers will be entitled to a return on their investment when such a return is made.

If you think you may require the services of a commercial solicitor to help you with debt and equity financing, call Contact Law on 0800 1777 162 or fill in the web-form opposite. We work with firms throughout the UK, and can help you speak to the right solicitor for your needs.

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