What do I need to consider in raising finance?
Type of finance required
There are two categories of finance – debt and equity. It is important to determine the optimum use of debt and equity to finance your expansion plans – too much debt and your business could be considered too risky; too much equity finance and your ownership of the company will be severely diluted.
| Type of finance |
Description |
Example |
|
Debt finance
|
- Finance is repaid with interest over a specified period of time.
- No ownership of your company by lender.
|
Bank Finance
|
|
Equity finance
|
- Exchange of money in return for an ownership stake in your company.
|
Venture Capital funding
|
Time period of required funding
There are different financial instruments depending on the length of time the finance is required. It is important to match these.
| Time frame |
Examples |
|
Short term
|
Bank overdraft, invoice discounting
|
|
Medium term
|
Leasing, bank loans, BES Funding
|
|
Long term
|
Bank term loans, venture capital, Enterprise Ireland funding.
|
Costs associated with raising finance
It is important to be aware of the cost of the money raised. Apart from interest charges and dividends, other costs you may need to consider include:
- stamp duty
- capital duty
- legal, professional and management fees
- negotiation and commitment fees on bank borrowing and Venture Capital investment.
Importance of your business plan in securing finance
The cornerstone of raising finance is a realistic and credible business plan, which will determine the strategic and financial needs of your business, typically over a three to five year period. All providers of finance, whether banks, venture capitalists or state funding agencies, will usually ask for a business plan which covers the main aspects of a business being considered for funding.
The funding requirements for each funding provider are different and the business plan may have to be tailored to address the needs of each investor.
Where can I go for more information on sources of finance?