Entrepreneurs have lots of options when it comes to debt and equity, writes Keith Morgan.
November’s Budget saw the Chancellor, Philip Hammond, set out his plans for the UK economy. Right at the centre of his proposals was a big pledge to back Britain’s entrepreneurs and smaller businesses with a £2.5bn boost for the British Business Bank.
For entrepreneurs and smaller businesses, so vital for the UK economy, securing extra finance is crucial to realising potential. But many business leaders are not aware of the finance options available to them and, according to the British Business Bank’s latest Small Business Finance Markets report, 71% of small firms would accept slower growth rather than borrow.
This is partly because many entrepreneurs lack awareness of the increasingly diverse funding market for smaller businesses. The British Business Bank’s 2016 Finance Survey reported that 69% of businesses seeking finance only approached one provider. Furthermore, around one in three small and medium-sized enterprises (SMEs) will cancel their plans if not offered the full amount of finance they are seeking.
The British Business Bank, as the UK’s national economic development bank, is working to change these statistics. On the supply side, we design, deliver and efficiently manage programmes that make finance markets work more effectively for smaller businesses. On the demand side, we work to raise smaller business awareness of, and confidence in, the finance options available.
For any entrepreneur, wherever they are on their business journey, understanding the options available is key to growth. The bank supports the market to provide two main forms of finance to smaller businesses –equity and debt finance.
Is the raising of capital through the sale of shares in a business. Equity can be sold to third-party investors with no existing stake in the business or, alternatively, can be raised solely from existing shareholders, through a rights issue.
Whether starting out or experiencing a high-growth phase, equity can help small businesses progress to the next level and access broader expertise at the same time.
Below is a list of options available, ordered by typical investment size from smaller investment options more useful for entrepreneurs and start-ups, to larger options more relevant for established smaller businesses:
In its simplest terms, is an arrangement between borrower and lender. Unlike equity, debt does not involve relinquishing any share in ownership or control of a business. However, a lender is far less likely to help a business hone its strategy or provide advice than a business angel or venture capital investor.
Our Business Finance Guide, which we jointly publish with the Institute of Chartered Accountants in England & Wales and in partnership with 21 other business and finance organisations, outlines the funding options available to businesses at all stages, taking into consideration their future plans.
Thousands of businesses are accessing this invaluable resource every month, benefiting from clear, unbiased information about the increasingly wide range of finance options available to them.
You can take the online journey at www.thebusinessfinanceguide.co.uk.