Keith Morgan

Keith Morgan

Looking to get ahead in business? Know your finance options.

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.

Equity financing
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:

  • Equity crowdfunding is a means to connect companies with hundreds of thousands of potential investors. This is achieved by matching companies with would-be angels via an internet-based platform.
  • Business angels are individuals who make equity investments in businesses with growth potential, businesses in the early stages of development, or in established businesses looking for expansion capital.
  • Venture capitalists invest in businesses with the potential for high returns. They want proven track records, and so rarely invest at the start-up stage, but bring a wealth of experience to the business.
  • Private equity investors offer growth capital or medium to long-term investments in companies with high-growth potential. They usually try to embed operational improvements and aim to grow revenue through investment in developing product lines, new services, or expansion into new territories.
  • Public listing is often the next stage of growth for a business looking to stay ahead and involves applying for a public listing of its shares.

Debt financing
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.

  • Overdrafts are often what businesses use to help finance working capital and to meet short-term requirements.
  • Loans, leasing or hire purchase agreements are, in most cases, better suited to larger longer-term purchases, such as investment in plant and machinery, computers or transport.
  • Peer-to-peer lending is a common debt option, whereby internet-based platforms are used to match lenders with borrowers. The UK is at the forefront of innovation in this growing form of alternative online finance.
  • Asset-based finance is a collective term used to describe invoice finance (IF) and asset-based lending (when a business loan is secured by using assets as collateral). IF includes factoring and invoice discounting, which will both involve funding provided against outstanding debts.
  • Merchant cash advances are unsecured advances of cash, based upon future credit and debit card sales. These are repaid via a pre-agreed percentage of a business’s card transactions.
  • Bonds and mini-bonds are a way for companies to borrow money from investors in return for regular interest payments.
  • Growth capital loans are flexible debt finance options that are tailored to the specific risks in the business, with a repayment plan to match the forecast cash generation of the business.

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