Equity vs Debt
Equity is permanent capital that costs nothing until it costs everything — a share of the business forever. Debt is temporary capital with a defined price and a fixed obligation. Established, cash-generative businesses very often raise equity when debt would have been both cheaper and faster.
| Criterion | Equity | Debt |
|---|---|---|
| Cost | Highest long-term cost via dilution | Defined interest and fees |
| Control | Board seats, consent rights, reporting | Covenants only |
| Risk if trading dips | No repayment obligation | Repayments continue regardless |
| Speed | Three to nine months | One to twelve weeks |
| Best for | Pre-profit, high-growth, R&D-heavy | Profitable, asset- or contract-backed |
| Repeatability | Each round dilutes further | Capacity rebuilds as debt amortises |
Selling 20% of a business valued at £5m raises £1m. If that business is worth £20m in five years, that stake has cost £4m. The same £1m borrowed over five years might cost £250,000 in interest. Where cash flow can service debt, debt is usually the cheaper capital by a wide margin.
Pre-revenue, pre-profit or heavily loss-making growth cannot service debt, and taking on repayments would simply accelerate failure. Equity is also right where the investor brings market access, governance or expertise the business genuinely needs.
Many transactions use both: senior debt for the fundable core, equity or mezzanine for the gap. Sizing the debt properly first minimises how much equity has to be sold.
If the business is profitable and the use of funds generates cash, exhaust sensible debt capacity before selling equity.
Sensible, serviced debt usually demonstrates discipline and improves valuation by reducing the amount of equity needed.
We arrange debt and structured funding. Where an equity component is required we will say so, and structure the debt around it.
Not sure which route fits? Describe the requirement once and we will structure it and approach the providers whose criteria match. No upfront fees — charges are due only once funding is in place.
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