PM+M’s corporate finance director, Peter Kelly, provides his thoughts on the question, how to fund growth – debt or equity?
Moving forward into 2021, some SME owners are developing growth plans with optimism. For ambitious management teams, the question of how to fund growth is key – debt or equity?
There will often be little desire to dilute control to achieve growth and debt funding may be preferable. Funders can structure facilities to support growth and ensure sufficient working capital without onerous capital repayment structures.
Owners may have reservations about selling equity, but there are advantages. Private equity (PE) houses have a track record of supporting growth and could make an excellent partner. They can provide the support needed to take a business to the next level and achieve its goals, potentially accelerating and improving management’s plans.
Whichever option; be investment ready. Have a clear vision for the funds and what you want to do. Understand your options and do your homework. Find the most appropriate funders to support your business, there are lots to choose from. Whether it’s a PE firm with a similar ethos to your own, or a debt funder who matches your needs with a sensible repayment structure.
Plan for the process. A business plan detailing your vision and future performance will make it easier for an investment partner to ‘buy in’.
Get help from your advisers. A clear picture of the financial outcome will go a long way, and your accountant can help. It may not be a straightforward choice between ‘debt or equity’, but a mix of the two may give you the best result.
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