When a company borrows money to be paid back at a future date with interest, it is known as debt financing.
Lenders may want security in the form of property, a charge over assets, book debts (your debtors) or a personal guarantee. Giving a personal guarantee means that if the business cannot pay, then you will.
A business would take out a loan to either finance working capital (cash flow), for growth, or purchases such as machinery, cars, premises or to acquire another business, for example.
The downside to debt finance is that it can be expensive, and it is therefore important that correct thought and planning goes into this, to ensure that you achieve the correct funding structure for you.
It is also important that thought goes into your debt-to-equity ratio – this is sometimes called gearing. In simple terms, the business is not borrowing more than it should.
The upside to debt finance is that the owners or shareholders will still own 100% of the business, while with equity finance, owners would have to relinquish shares in their business.
Footprints can help you to source the correct deal for your business, package the financial reports to support this and introduce you to our extensive panel of lenders.