Business Borrowing - Exploring your options

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Exploring your options

The key to deciding which type of finance is right for your business is to understand the different options available to you.

Firstly, there are two main categories of finance - debt finance and equity finance. Debt finance means you borrow money and pay it back with interest over time. Equity finance means you raise capital through the sale of shares in your business and pay it back in dividends or capital growth.

Once you've decided whether debt or equity finance is right for your business, you can start to look at the specific borrowing options available to you.

Debt finance

Debt finance can be used for anything from funding short-term working capital to acquiring long-term assets. As your business needs change, your debt finance needs also change and you may even use a combination of different debt products at any one time.

Is debt finance right for me?

  • You don't have to give up a share in your business to a lender
  • You repay the amount borrowed with interest and any applicable fees
  • Your interest payments may be a deductible expense against tax
  • You make the agreed repayments to the lender
  • You abide by the terms and conditions of the finance agreement and any related security documentation.

What are the key debt finance options? There's a wide range of debt finance products for you to choose from - below are some of the options available with HSBC.

Finance for working capital

  • Overdrafts - suitable for short-term cash flow fluctuations, this flexible borrowing facility is usually offered for 6 to 12 months
  • Business credit cards - suitable for day-to-day expenses and can offer benefits like an interest-free period
  • Factoring and invoice discounting - suitable for improving cash flow by raising cash against invoices
  • Supply chain finance - suitable if you supply to a large corporate buyer who can instruct a financial intermediary to pay your invoices swiftly on their behalf

Term/fixed asset finance

Are there any alternative sources debt finance options? There are plenty of other sources of debt finance available in the market including: commercial loan and asset finance providers, community finance providers, government-backed schemes, invoice finance providers, peer-to-peer lenders and platforms that facilitate the sale of individual invoices. You can find out more at the government's Great Business website.

Equity finance

Equity investment can be a way to finance different stages of businesses, from starting up to experiencing a high-growth phase. As they become shareholders, investors' own a part of your business which means they maintain a longer-term interest in your business. Although equity investment is not usually offered by retail banks, we want to highlight this option to ensure you make the right choice for your business.

Is equity finance right for me?

  • You may not have to repay investors should your business fail
  • You will have to give up a share in your business to an investor
  • You have no obligation to make regular repayments and pay interest on the amount invested
  • You accept that investors may require some control over the running of the business by sitting on the board of directors
  • Your investors are ultimately repaid by the sale of shares in the business.

What are the key equity finance options? There's a wide range of equity finance products available on the market - here are some of the most common options:

  • Business Growth Fund - an independent company initiative, backed by HSBC and four other major banks, that invests between £2m and £10m in small- and medium-sized businesses
  • Business angels - individuals who invest money, skills and experience in young businesses with growth potential, looking for high returns on high-risk opportunities after three to seven years
  • Venture capitalists - professional investors who invest larger sums and give strategic advice to more established businesses
  • Private Equity - investors make medium to long-term financial, strategic and operational investments, typically focusing on product lines, new services or expansion into new territories
  • Equity crowdfunding - a new and innovative venture using social media to raise finance by asking a large number of people for a small amount of money each.

Find out more

Financing tool

Use our interactive tool to explore financing options

The business finance guide

Download a comprehensive guide to your borrowing options from the British Business Bank

Better Business Finance

Access impartial support to help you find the finance you need

Great business support

Use the government's interactive tool to find sources of funding and guidance

Peer-to-Peer Finance

Discover how consumers could finance your business borrowing

UK Business Angels

Read more about how business angels work

British Venture Capital

Discover if venture capital is right for you

UK Crowdfunding

Watch the video guide to learn more about crowdfunding

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