What is debt funding?

Debt or loan funding is often a cost-efficient way of getting the finance you need for the short to medium term.

Debt funding

Debt comes in many forms but generally involves borrowing a sum of money, which is often secured against a tangible asset.

The debt is repaid with interest at an agreed future date.

Ideally your business should have a financial track record to secure debt. You also need be able to demonstrate that you can repay the money borrowed.

Who provides debt funding?

  • High street banks
  • New challenger banks
  • Peer-to-peer lenders
  • Specialist debt providers
  • Specialist loan funds – both public and private sector

Advantages of debt funding

Debt is often a cost-efficient way of getting the finance you need for the short to medium term.

The cost of using debt depends on the interest rate and the length of the loan (plus any arrangement fees that some lenders charge).

After you've paid the interest and repaid the principal, the debt financing will no longer cost your business money - a key difference from equity finance.

Equity investors generally have an ongoing say in how your business is run. You'll need to make your repayments on time and keep all terms and conditions.

Debt providers will only intervene if you fail to make agreed payments of capital or interest, or breach any terms and conditions.

There are many kinds of debt funding products available. These include:

  • Term loans
  • Overdrafts and working capital facilities
  • Invoice discounting
  • Asset finance

Why choose debt funding?

  • If you have revenue
  • Don't want to sell part of your business, and
  • Want a straightforward repayment programme with a simple cost structure

How we can help with loan funding

The Scottish Investment Bank, our investment arm, actively invests in high-growth businesses across Scotland and provide advisory support to companies looking to raise funding through our financial readiness team.

The Scottish Government has made funding available to Scottish Enterprise through the Scottish Growth Scheme to enable us to provide loan funding £250,000 to £2 million (and up to £5 million in exceptional circumstances) through the Scottish Loan Scheme into established viable companies that have a minimum turnover of £250,000 and a clear ability to repay the debt.

The Scottish Loan Scheme is delivered by the Scottish Investment Bank.

Got a question about accessing finance?

Get in touch with our team of experienced financial readiness experts who can help you secure funding from a range of sources including bank funding, equity funding, and grants.

Scottish Government gov.scot

Scottish Government

Scottish Growth Scheme

Scottish Growth Scheme

Disclaimer

This guide was written by our investment team at the Scottish Investment Bank who work with Scottish businesses and UK and international investors.