Everything you need to know about external finance

The good news for entrepreneurs is that there is a wealth of finance options out there to help grow a business. We tackle your burning questions, so you can make an informed decision about your funding future.

Q: What's the difference between equity and debt?

Equity finance means you sell a share of your business, while debt finance means you borrow money from a lender who needs to be repaid.

Q: What are the different types of equity and debt finance?

Types of equity finance

• Angel Investment
• Corporate Venture Capital
• Equity Crowdfunding
• Expansion Capital
• Initial Public Offering (IPO)
• Private Equity
• Venture Capital

Types of debt finance

• Asset-Based Lending
• Leasing & Hire Purchase
• Business Loans
• Debt Funds
• Export Finance
• Invoice Finance
• Overdrafts
• Peer-to-Peer Lending
• Start-Up Loans

Each option has different pros and cons. Click the links to read our guides on each of these and find out about them in more detail.

Q: Is equity or debt right for me?

Choosing between equity and debt is a really important decision for how you want to grow your business. Your suitability will depend on a few factors, including:

• Your attitude to ownership

  Some business owners don’t want to give away a share of ownership in their business and that’s fine. It just means that equity investment is off the table.

• Your ambitions for growth

  Business owners need to evaluate their potential to grow. Equity investors look for significant growth across the investment period because that’s how they make money.

  Debt lenders, on the other hand, don’t mind if the business grows or not – so long as you repay the money and interest.

• How long you need the finance for

  Equity finance suits businesses with big ambitions for growth over the long term. Debt can help businesses borrow money over the short term.

  This is not an exhaustive list. Other factors, including the type, size and sector of your business, are also likely to affect your suitability.

Q: How do I choose a finance option?

Once you’ve decided whether equity or debt is right for you, there are a few more considerations that can help you find suitable finance options:

• Your business ambitions

  Sometimes, there’s a finance option that perfectly suits your goals. For example, Export Finance is specifically for businesses that want to expand into new international markets.

• How much money you need to borrow

  Equity investors can offer anything from £15,000 to £100 million, depending on the business plan and equity share.

  Debt lenders can provide amounts ranging from a few thousand pounds up to millions of pounds, depending on the provider and business plan.

• Terms of the finance

  For equity finance, this might include things like how much of a share in your business you’re willing to give up, and the duration of finance.

  For debt finance, you need to consider the repayment period and interest rates.

The British Business Bank built its Finance Hub to help businesses identify suitable finance options. Use our finance finder below or visit our resource centre to read the guides we've created with our partners.

Q: When will I be expected to sell a share of my business?

With equity finance, you sell a share of your business to your investor. The share will be based on the value of your business and the amount of money you're asking them for.

However, the decision of how much equity you give up is ultimately yours. Never give away more than you want to - especially in the early stages of a business, when it's important to stay incentivised.

Q: What do I need to do before I start the process?

First, evaluate your business honestly. You need to understand:

• your potential for growth
• how achievable your ambitions are
• the intricacies of your valuation and business plan

The next stage is to understand the finance landscape. With information about your business and needs in mind, you can work out what might and might not be a good fit.

Finally, it's often worth speaking to a trusted adviser or mentor. If you don't have one, speak to like-minded businesses that have applied for the same kind of funding.

You can find people at networking events or even as case studies on investors' websites. Often, entrepreneurs are happy to chat over a coffee or lunch.

Q: How much finance can I get?

It depends on:

• the type of finance you seek
• the lender
• your business

There are finance options ranging from a few thousand pounds, right up to hundreds of millions.

Just remember to be realistic when speaking to investors and lenders. And be ready to back up any financial information, like your company valuation or how much funding you need.

Q: Who can I talk to if I have a question?

Take a look at our directory of finance partners and experts.