My son borrows money from me from time to time, and I’ve tried to explain to him the seriousness of debt. His response is always “oh please Dad, I think you should give me a little more credit.” That silly ditty aside, raising money for growth is a serious business for founders and business leaders.
I Feel the Need…to Capitalise…
First time entrepreneurs typically begin their journeys behind companies who are dominating their sector. To get their businesses off the ground, they need to raise funds; could be their money, family wealth, or high net worths may step in for a piece of the pie. Experienced business leaders scaling companies or starting again may turn towards venture capital for equity deals where previous successful connections have been made. But what about the debt landscape.
Conform to the Norm. or be Adventurous.
In recent years there has been a growing trend of companies turning towards private debt markets as opposed to the traditional banking environment, but there are pros and cons, especially when it comes to the price to pay for the debt.
Most folk know about at least one alternative means of raising funds for a product launch or operational growth, but do they appreciate the variety of available debt-based products out there; moreover, at the relative point in time, do they understand the landscape of the economy and impact it has on the accessibility of debt.
For example, we all know that interest rates in the UK have increased and here’s hoping they will top out soon enough, but many countries have been keeping interest rates low to stimulate economic growth. In some jurisdictions, this has made borrowing cheaper and has led to an increase in demand for debt funding.
Well, if it was up to me…
It is, and you have choice. Overall, there has been a rise of alternative lenders to compete with traditional banks such as peer to peer lending platforms and venture debt, a type of financing that is designed specifically for venture-backed-startups and high growth companies.
Debt-based fund raising is a true avenue for exploration for companies, depending on the requirement, but do your Debt Due-Diligence and shop around, talk to those who have borrowed before, or maybe its time to bring on some kind of part-time Finance Director resource to guide you. You could also pay a professional services firm to identify a shortlist of the right products.
Whatever the situation, do what is best for your business and take the necessary time to consider all options carefully, as debt funding is likely to continue being an important source of capital for businesses in the future, and guess what…depending on the product and the provider, it might be cheaper than you had thought, and is likely not to dilute your ownership.