Flexible fundraising: Equity or debt financing?
A company may wish to raise additional funds during its lifespan, in order to facilitate growth or perhaps to navigate a difficult economic period.
Identifying the most suitable method of fundraising is crucial: equity financing, debt financing, or even a mixture of the two?
What is equity financing?
Equity financing is the process by which a company offers shares to investors in exchange for capital. While a deal may be struck as to the number of shares for the amount being raised, the key issue is the dilution of existing shareholdings and, depending on the scale of the fundraising, the subsequent existence of majority shareholders which are external to the management team.
What is debt financing?
Alternatively, debt financing allows a company to borrow money to raise funds. There are several options for debt financing including:
- Traditional high-street bank loans
- Private loan agreements between friends and family members; and
- Corporate instruments such as the issuance of bonds or convertible loan notes for larger scale financing.
For a company, the significant benefit to debt financing is that it allows for the maintenance of ownership and control with the additional advantage of greater scope for large amounts of funds to be raised.
Debt finance instruments
Depending on the scale of the funds being sought, it may be in a company’s best interest to proceed by way of the listing of a debt instrument (such as a bond) on a recognised stock exchange. By listing the instrument, the company may benefit from the significant tax advantage of being exempt from UK withholding tax on interest payments, as well as gaining access to institutional investors.
How Hamlins can help
The Hamlins Corporate team has assisted multiple clients with the listing of debt instruments on the exchange-regulated Multilateral Trading Facility of the Vienna Stock Exchange (the Vienna MTF), as well as other European multilateral trading facilities.
We can support with:
- the creation of debt instruments
- the actioning of a verification process for an information memorandum or prospectus; and
- making the application on behalf of the company to the recognised exchange.
Our Corporate team acts for entrepreneurs, SMEs and larger organisations, providing corporate, commercial advice and business expertise, both in the UK and internationally.
Debt financing increases the debt load of a company and therefore may not be suitable for all; we are experienced in supporting clients in determining which financing option may be most suitable to them. If you would like to explore fundraising options for your business, please get in touch to find out more.