Exploring your options as interest rises.
Most businesses rely on funding in one form or another to keep their operations running, invest in new equipment or projects, and grow.
The past few years in particular have made it necessary for many businesses to source extra funds, either for dealing with the impacts of the pandemic or the rising cost of supplies.
According to UK Finance, SMEs borrowed a total of £22.6 billion in 2021, with demand for finance stabilising towards the end of the year.
But as interest rates rise, so does the cost of debt, and that’s putting additional pressure on businesses across the UK. As loans become more expensive, you might be wondering about your other options when it comes to financing.
Debt vs equity
You don’t have to choose between debt and equity finance – in most cases, businesses use a combination of the two. But it’s important to know the pros and cons, so you can make sure you’ve got the right mix.
Put simply, debt finance means you’re borrowing the money and will need to pay it back, usually with interest. Equity, meanwhile, means you’re selling a stake in your business to an investor – so they won’t expect you to pay the money back.
Because of this, getting finance through investment means you avoid the problem of rising interest rates altogether. But it does mean you’re giving up a portion of your business – and its profits – to someone else.
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