Alternatives to equity finance
Equity finance may not suit your business. For example, you may not feel happy about losing a degree of control, or the intended project may be too small to be an attractive investment opportunity.
Consider the following alternatives:
- Loans - there are many options available, from commercial mortgages secured against your business assets to short-term borrowing for periods of between three and five years.
- Overdrafts - overdrafts can be expensive but are a flexible form of borrowing. They're not especially suitable for long-term finance as they are repayable on demand.
- Loans from family and friends - these can be a sound method of raising finance, but beware of potential damage to relationships if the money isn't repaid on time.
- Additional funds - from you or your fellow partners/directors.
- Government support - there are government support schemes that may help your business as well as private sector initiatives. Search our business support finder for grants, loans, expertise and advice for which your business may be eligible.
- Joint ventures - these can take many different forms. The term normally applies to the co-operation of two or more individuals or businesses in a specific enterprise rather than in a continuing relationship.
- Credit cards - these are a quick way of raising finance and a flexible form of borrowing. However, unless you can manage your cards very carefully to avoid paying interest and other fees, they are not suitable for long-term finance.
Mezzanine funding combines elements of debt and equity finance and can provide access to bank funding that the business may not have otherwise been able to obtain. Under mezzanine funding a provider charges interest on the debt and also takes a share of profits when a company grows.
Mezzanine arrangements do not involve issuing shares to the lender and do not affect the value of the company's shares. Debts are usually repaid in a single payment and can be expensive, as the one-off repayment will involve a large sum of money which would affect businesses that have failed to fulfil their growth strategies.