Debt funding or taking on borrowed money to finance a business project or investment, can be a valuable option for entrepreneurs and investors. Whilst it may seem counterintuitive to take on debt to grow a business, there are many reasons why debt funding can be the most suitable option.
First and foremost, debt funding can provide access to capital that might not otherwise be available to many entrepreneurs and small business owners which can be particularly helpful for businesses that need to invest in new equipment, acquire another business, expand their workforce, or launch a new product or service.
Another key advantage of debt funding is that it allows the business access to this additional cash whilst retaining ownership and control over the operations of the business. Other forms of finance such as “equity“ investment would look to take a shareholding in the business and likely impose some controls, and require greater involvement in the running of the business.
As a result, for many entrepreneurs and business owners, securing venture capital or other forms of equity funding can prove difficult whilst growing or strong businesses, especially those with an established track record of revenue generation and profitability which demonstrates their ability to service the repayment of any loan can typically source a debt funding solution to suit their needs relatively easily and quickly.
Of course, it’s important to note that debt funding is not without its risks. Taking on too much debt can lead to cash flow problems and / or difficulty making repayments. However, when used strategically and with careful planning, debt funding can be a powerful tool for businesses and investors alike.
At River Capital, we offer and manage several debt funds that could be utilised to help fuel the ambitions of your SME including the Business Growth Loan Fund, the Northern Powerhouse Investment Fund and the Flexible Growth Fund either in part or as the complete solution.
In conclusion, debt funding
- Can provide access to capital to support business growth:
- Allows business owners to retain ownership and control of the business:
- Is a relatively cheap form of finance:
- Is generally more accessible than equity forms of finance:
While it may not be the right choice for every business, entrepreneurs and investors should consider debt funding as a viable option when looking for ways to finance growth and achieve their goals.
Jim Moore – Investment Manager
For more information on debt funding and to determine whether its right for you, head here.