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Businesses, equity or debt fund raise?

David Prosser, Debt (Loan), Equity | 19/11/2014 | David Prosser - SME and business editor

debt_equity_invoice_finance
David Prosser - SME and business editor

Author: David Prosser - SME and business editor

What’s the best way to fund a growing business? The often bitter debate we’ve seen since the credit crisis – are banks starving small companies of the cash they need to fulfil their potential? – comes with an underlying assumption. It is that debt is the only type of capital available to start-ups and expanding businesses. And that is to wrongly ignore the role of equity finance.

In fact, the way in which small companies were able to borrow so freely in the years leading up to the credit crisis was the exception rather than the rule. Whatever one thinks about the behaviour of the banks since then, there’s little doubt that during the bubble years some businesses were allowed to borrow more than should have been – and far more than they would have been in the past.

Meanwhile, many of the traditional providers of equity finance withdrew from the funding market. Indeed, the banks themselves, which for decades ran successful development capital businesses, had all shut down these operations by the time of the crisis.

From an entrepreneur’s point of view, it can be unpalatable to offer equity capital. Giving up a share of the business to other investors may feel uncomfortable – and in the years before the credit crunch, when the only providers of this type of funding were private equity and venture capital groups, businesses often had to hand over controlling stakes.

In many ways, however, equity capital is very powerful. Not least, it puts finance into the business without tying the company into inflexible repayment schedules or debt covenants that could see them lose control if results come more slowly than expected. Exploring the likes of CrowdCube, Venture Founders and SyndicateRoom are just a few to check out.

It is also a more fitting way to reward investors prepared to take the risk of putting money into such businesses. These investors don’t get regular repayments of capital and interest but they do get a greater share of the upside than lenders would in the event that the business is a success. Their interests are absolutely aligned with the company’s.

For companies who are just too risky for debt finance, equity capital is credible alternative. Young British businesses got out of the habit of funding themselves this way, but for most of the second half of the 20th century, this was the conventional way for a growing company to expand – debt finance was much harder to come by.

Enter the crowdfunding sector, which offers both equity and debt finance. Most platforms specialise in one or the other, while a handful offer access to both.

Interestingly, the equity crowdfunding platforms don’t have many of the disadvantages entrepreneurs associate with this type of funding. There is no need to give up majority control, for example, and investors will typically be hands-off rather than closely involved with the running of the company.

That’s not to say equity finance is the right option for all businesses. There is no stock answer to the question of which type of funding is the best solution – it depends on the precise circumstances of the company. But the point here is that equity finance is something more businesses should consider – and that crowdfunding platforms make it far easier to raise money this way than ever before.

Investor Search

Country
  • -
  • Estonia & EEA
  • Germany
  • UK
  • US
Platform
  • -
  • Zopa
  • Funding Circle
  • Crowdcube
  • RateSetter
  • MarketInvoice
  • Wellesley & Co
  • FundingKnight
  • Assetz Capital
  • Money&Co
  • Proplend
  • ArchOver
  • Invest and Fund Ltd
  • ReBuildingSociety
  • LendInvest
  • EstateGuru
  • Investly
  • Angels Den
  • UK Bond Network
  • Crowd for Angels
  • VentureFounders
  • LendingCrowd
  • Lending Works
  • Indiegogo
  • Relendex
  • Lendwithcare (The Cooperative)
  • Kickstarter
  • Folk2Folk
  • Buzzbnk
  • Platform Black
  • Crowd2Fund
  • Crowdshed
  • Sancus
  • The Credit Junction
  • SyndicateRoom
  • Crowdbnk
  • Squareknot
  • Crowdfunder
  • Thincats
  • StudentFunder
  • Madiston LendLoanInvest
  • Bloomvc
  • Hubbub
  • ThrillPledge
  • Gradurates
  • eMoneyUnion
  • SeedUps
  • PitchforIt
  • ShareIn
  • FinPoint
  • Venture Giant
  • GrowthFunders
  • ThrillCapital
  • InvestingZone
  • Crowdahouse
  • Thehousecrowd
Investment type
  • -
  • Bonds
  • Debt / Loan
  • Donation
  • Equity
  • Invoice Finance
  • Loan
  • Peer-to-business
  • Peer-to-peer
  • Property
  • Property / Asset
  • Reward
Typical return
  • -
  • 12 to 14%
  • 14% and above
  • 6 to 8%
  • 6% and below
  • 9 to 11%
  • 9% to 14%
  • 90% of capital raised at sale - no immediate return. Long-term equity investment.
  • Company shares
  • Equity / Shares
  • No immediate return. Long term equity investment.
  • Rewards
  • Variable
Minimum investment
  • -
  • No minimum
  • £100
  • £1000
  • £10000
  • £25
  • £2500
  • £25000
  • £50 and below
  • £50,000 and above
  • £500
  • £5000
Fee
  • -
  • NO
  • YES
Secondary market
  • -
  • NO
  • YES
Investment incentive
  • -
  • NO
  • YES

Funding Search

Country
  • -
  • Estonia & EEA
  • Germany
  • UK
  • US
Platform
  • -
  • Zopa
  • Funding Circle
  • Crowdcube
  • RateSetter
  • MarketInvoice
  • Wellesley & Co
  • FundingKnight
  • Assetz Capital
  • Money&Co
  • Proplend
  • ArchOver
  • Invest and Fund Ltd
  • ReBuildingSociety
  • LendInvest
  • EstateGuru
  • Investly
  • Angels Den
  • UK Bond Network
  • Crowd for Angels
  • VentureFounders
  • LendingCrowd
  • Lending Works
  • Indiegogo
  • Relendex
  • Lendwithcare (The Cooperative)
  • Kickstarter
  • Folk2Folk
  • Buzzbnk
  • Platform Black
  • Crowd2Fund
  • Crowdshed
  • Sancus
  • The Credit Junction
  • SyndicateRoom
  • Crowdbnk
  • Squareknot
  • Crowdfunder
  • Thincats
  • StudentFunder
  • Madiston LendLoanInvest
  • Bloomvc
  • Hubbub
  • ThrillPledge
  • Gradurates
  • eMoneyUnion
  • SeedUps
  • PitchforIt
  • ShareIn
  • FinPoint
  • Venture Giant
  • GrowthFunders
  • ThrillCapital
  • InvestingZone
  • Crowdahouse
  • Thehousecrowd
Funding type
  • -
  • Bonds
  • Debt / Loan
  • Donation
  • Equity
  • Invoice Finance
  • Loan
  • Peer-to-business
  • Peer-to-peer
  • Property
  • Property / Asset
  • Reward
Loan / funding size
  • -
  • No minimum or maximum
  • £1,000,000 and above
  • £100,000 - £500,000
  • £25,000 - £100,000
  • £250,000 - £2,000,000
  • £5,000 - £25,000
  • £500,000 - £1,000,000
  • £5000 and below
  • £50000 - £5000000
Typical rate
  • -
  • 12 to 14%
  • 14% and above
  • 5% to 15%
  • 6 to 8%
  • 6% and below
  • 8% to 14%
  • 9 to 11%
  • below 6% to 14% and above
Security required
  • -
  • NO
  • YES

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