Scaling your business often requires access to capital. While some entrepreneurs have bootstrapped their way to success, this is the exception rather than the rule. For most businesses, external financing accelerates growth. You’ll typically face a choice between debt finance and equity finance. Understanding the pros and cons of each will help you determine the best fit for your business.

Debt Finance: An Overview

Debt finance involves borrowing funds that you’ll repay with interest. This can take the form of a lump sum loan, a rolling facility, or other options tailored to your needs. Here’s what you need to know:

How Debt Finance Works

Before applying for a loan, identify your funding purpose—whether it’s working capital, purchasing machinery, or financing a larger project. Once you understand how much capital you need and over what term, you can choose the most suitable loan.

In Ireland, the three main types of business loans are:

Installment Loans
Traditional loans that provide a lump sum with fixed repayment terms and amounts. These loans can be secured or unsecured.
Revolving Loans
These provide access to a flexible credit facility, such as a bank overdraft, that can be drawn upon as needed.
Cash Flow Loans
These loans are typically linked to your business’s revenue. For example, a merchant cash advance allows repayment based on card machine turnover, with a fixed percentage deducted as revenue comes in.

After identifying the right loan type, compare offers from various lenders. Approval typically depends on factors like your business turnover, how long you’ve been operating, and your creditworthiness. Bank loans often require strong personal credit and guarantees, whereas non-bank loans may have fewer requirements.

Pros and Cons of Debt Finance

Pros

Ownership Retention: Unlike equity finance, where you give up a share of your business, debt finance allows you to maintain full control.
Accessibility: Securing investors can be challenging, especially for businesses with less unique propositions. Debt finance is often more straightforward.
Flexibility: Many lenders offer repayment terms ranging from 6 to 60 months, with options for early repayment or refinancing.
Tax Deductibility: Loan interest is often tax-deductible—check with your accountant to explore potential savings.

Cons

Expense: Businesses with limited trading history or poor credit may face higher interest rates.
Declined Applications: Loans can be denied if your business doesn’t meet underwriting criteria.
Personal Guarantees: In Ireland, personal guarantees are common, meaning you may be personally liable for repayment if the business fails.

Equity Finance: An Alternative to Debt

Equity finance involves raising funds by offering ownership stakes in your business. This approach reduces financial risk but also means sharing profits and decision-making with investors.

While equity finance can provide growth capital without adding debt, attracting investors requires a compelling pitch deck and solid financial ratios. In Ireland, only a small percentage of businesses secure funding from venture capitalists or angel investors. Crowdfunding platforms may be more viable but require significant effort and initial investment from your network to gain traction.

Exploring Types of Business Loans in Ireland

Bank Loans

Banks offer medium- and long-term loans with competitive interest rates, particularly for businesses qualifying for SBCI-backed loans. However, their eligibility requirements are often stricter, requiring detailed financial documentation.

Non-Bank Loans

Private lenders, including peer-to-peer platforms, typically offer faster approvals and flexible terms. These loans are graded based on risk, with interest rates ranging from 6% to 12%.

Business Lines of Credit

Lines of credit, such as overdrafts or invoice financing, provide flexible access to funds. While they often come with higher interest rates, they’re ideal for businesses with seasonal or irregular cash flow.

Asset Finance

If you’re purchasing equipment, vehicles, or machinery, asset finance can be a practical solution. The asset itself serves as collateral, reducing the lender’s risk.

Venture Debt

This hybrid option combines debt with equity conversion rights, offering more straightforward transactions than traditional equity finance.

Royalty Finance

In this model, you receive funding in exchange for a percentage of future revenue, allowing you to retain ownership without the complexity of equity financing.

Merchant Cash Advances

Businesses with card machine or online payment systems can secure advances based on turnover. Repayments adjust with your revenue, but this flexibility often comes at a higher cost.

Making the Right Choice

Choosing between debt and equity finance depends on your business goals, risk appetite, and growth strategy. Debt finance preserves ownership but increases financial obligations, while equity finance reduces personal risk but involves sharing control.

Whatever path you choose, seek professional financial advice to ensure your decision aligns with your vision. For tailored advice and fast finance quotes, call 01 55 636 55 or APPLY HERE.

When your business is getting started you need access to business loans more than at any other time. But it’s at this time when it’s hardest to get. The pandemic hasn’t helped matters either. You don’t have enough history for lenders to make informed decisions to give you longer terms. We often speak to business owners who have gone to the bank and are not getting support or they see the information request and they are reluctant to put in their time and expense of getting the request attended to. Here are a few ways we offer to help.

BANK LOAN APPLICATION SUPPORT

We have a contact in the bank who can help early stage businesses but he wants a business plan, financial projections for the short, medium and long term and a whole lot more. He also wants to know how much of your own funds are committed to the business. The less ‘skin in the game’ you have the more likely it’s a decline. If you can provide what they require you can get up to €120,000 at rates or around 6%. Alternative lenders for early stage businesses will generally have lower paperwork requirements but the rates are higher. If you want the best deal of a bank with the added convenience of getting the hard yards done for you, we have partners who produce business plans and financial modelling with a track record of success in approvals.

Unsecured loans from alternative lenders

We have partners who will offer early-stage businesses unsecured loans. Generally we are talking about having one years set of accounts done before they will look. Then you can expect, instead of around 6% with the bank, a double-digit percentage with the non-banks. One thing to note is you usually won’t have to worry about an early-repayment penalty. So if you can find cheaper finance elsewhere as you get more profitable trading history you can exit the more expensive loan. For unsecured loans from non-banks it’s when you get to two years accounts that rates become more reasonable. They’re graded for risk, A, B, C, D, E etc so your rate could start at 4.75% currently in that situation.

Merchant cash advance

Any business with at least 6 months history, that uses a card machine or a merchant account online such as Stripe or PayPal, can get an easy finance solution based on the volume of monthly sales. The rule of thumb is you can get a quote equivalent to one month’s sales. If you are doing, for example, €50,000 a month you might get a €50,000 offer. At the moment the is especially important for hospitality businesses finding their feet and eCommerce businesses needing advertising and stock.

INvoice Finance

If you’re building up a book of debtors and you need working capital to pay wages, buy materials or just keep the lights on then you can release cash flow trapped in your invoices as soon as they’re issued. The flexible options enable you to get around 80% now, get charged around 1.5% per 30 days and you then get a final settlement when the debtor pays and you exit the short-term arrangement. Usually your debtor is insured so you get extra comfort. If something goes wrong with their business you’ll get a pay out.

Asset Finance

A lot of early-stage business owners who come to us looking for loan quotes want cash loans. But when you drill down you can find a lot of their need is made up of buying assets such as equipment, machines & vehicles. It’s far easier for asset finance companies to approve an early stage business because they retain ownership of the asset until the final payment is made. If something goes wrong with your business they can take it back so that’s an easier lending decision than lending cash unsecured.

There are a host of other business loan quote options that might fit your situation. We’re here to help 7 days from early ‘til late. Call us on 01 55 636 55 or email hello@businessloans.ie.