Advantages of Debt Financing for Small Businesses

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Written by Michael Foote, Insurance and Finance Expert

Michael Foote is the founder of Quote Goat and has over 13 years experience working in the finance, insurance and currency sectors. Since launching Quote Goat he has appeared on TV as well as many of the largest online publications including Forbes, The Telegraph and The Metro. Prior to Quote Goat, he worked in finance in the city for a number of firms including HSBC.

Most businesses encounter choppy waters from time to time, which is why business finance can be a great lifeline if you’re experiencing a few temporary difficulties. Whether you’re just setting up, or you’ve been established for a number of years, it’s reassuring to know you can get access to some extra cash in times of need.

But as well as pulling you through a tough period, there are a number of other situations in which you may require finance. This is why it’s always beneficial to have access to finance, and the more options at your disposal the better. There are two types of finance – debt finance and equity finance – so here are some of the benefits of debt finance and why you might come to need to borrow cash as a small business owner.

Maintain control of your business

As we already discovered, there are two types of finance: debt finance and equity finance. When we talk about loans and other types of borrowing, these fall under the umbrella of debt finance. With these, you’ll need to pay back what you borrow – plus interest – until the debt is covered.

However, with equity finance, you’ll hand over a percentage of your business in order to gain access to your funds – a bit like the negotiating you see on Dragons’ Den! While this might work for some people, others prefer to keep full ownership of their company and so they prefer debt finance instead.

Improve cash flow

It’s always reassuring to maintain healthy cash flow to ensure your business has the funds available to cover bills, wages and other essential outgoings. When you take out a loan or other type of finance you’ll have access to a large sum of money, and you can agree upon an affordable repayment plan that won’t leave you out of pocket. Another way to improve cashflow is by unlocking the capital tied up in your unpaid invoices with invoice finance.

Invest in expansion 

In many cases, businesses have the potential to expand, but often they’re limited by financial constraints. Perhaps you’ve realised there’s an additional service you could offer, or a competitor is selling up and there’s a possibility for you to grow as a company. While these may be great ideas, without the cash at your disposal then how would it be possible to take your business to the next level?

This is where financing comes in. The lender gives you the required amount, you expand your company and make affordable repayments until the finance is fully paid off. What’s even better is once you’ve grown your business, you should have more cash coming in which makes it even easier to keep up with the payments.

Types of finance

When it comes to borrowing cash, there are a few options. As well as a traditional business loan that we’ve covered in this piece, there’s also a more flexible option called a merchant cash advance. An MCA is similar to a loan, but it allows you to pay back the cash you borrow as an agreed percentage of your credit/debit card sales. This can be a great option if your business is seasonal or you have poor credit as the lender won’t run a credit check on you.

If you’re interested in an MCA, why not compare merchant cash advances with us? We compare deals from some of the market’s most trusted providers to bring you a selection of great deals that could save you time and money with just a few clicks. So, if you’re interested in finance, compare merchant cash advances with Quote Goat today!