Accessing the funding that your business requires is a key part of starting, growing and scaling a business. It is also just as important to keep your business going (and growing) by understanding how to plan and manage the finances.
There are three principle forms of external finance for businesses:
Debt Finance
Debt finance usually takes the form of loans, but can also come in other forms such as overdrafts, asset based finance, or invoice factoring, amongst others. Business loans are one of the most common ways smaller businesses will access finance. A business in receipt of debt finance will be required to repay the debt over an agreed timescale, usually with interest.
Equity Finance
Equity finance is a type of funding employed by businesses seeking to grow and involves the business owner selling a stake in their business to investors in return for capital (finance). There are various forms of equity finance, including seed funding, venture capital, and angel investment, amongst others. As equity is invested by buying a stake in the business, it does not have to be repaid as does debt finance, however investors will usually seek to make a return on their investment via the growth of the business, and by exiting the business by eventually selling their stake at a profit.
Grant Funding
Grant funding is the award of monies - usually by a public body - for a business to spend on specific goods, works or services in pursuit of an agreed outcome for the business. So long as the terms of the grant award are fulfilled by the business, it will not have to be repaid. Grants usually have to be applied for in advance of incurring the spend, and are primarily claimed in arrears against evidence of spend having taken place. Some types of grants include:
- Start-up grants for new businesses to purchase essential equipment such as laptops, point of sale systems, and business software such as bookkeeping and CRM systems
- Capital equipment grants for established and growing businesses to purchase new equipment and tools to help support business growth
- Consultancy grants for growing business to work with specialists and consultants on business development projects such as business planning, workforce development planning, and digital transformation
- Innovation grants to help businesses introduce new products, services and processes to the business to help drive productivity and competitiveness