By Aadil Butt FCCA MBA
7 min read
How to Find Capital for Your Business
Businesses raise outside capital in two ways: equity (selling a share of the business, with no repayments but permanent loss of some ownership and control) or debt (borrowing you repay with interest, while ownership stays put). Neither is better in itself. Government-backed routes can help either way: Start Up Loans of £500 to £25,000 at a fixed 7.5%, the Growth Guarantee Scheme for up to £2 million of lending, and the SEIS and EIS tax-relief schemes that make a company more attractive to investors. The decision that matters comes before any application: how much you need, what it is for, and which route leaves the business better placed in three years.
Hiring the next few people, buying equipment, moving into bigger premises, or simply carrying the business through a slower quarter: all of it takes capital beyond what is sitting in the business account. Get the structure right, and capital accelerates growth. Get it wrong, and the business spends years working around a decision made under pressure.
The Finance Equation Ltd is an award-winning, ACCA-regulated firm of chartered certified accountants with over 30 years’ experience, advising businesses across London on raising, structuring and managing capital — helping you choose the right route before you commit to one, not after.
Two Ways to Raise Capital: Equity or Debt
Capital financing simply means raising funds from outside the business rather than generating them from trading profit, and it comes down to two fundamentally different routes.
Equity financing
Selling a share of the business itself in exchange for investment.
Debt financing
Borrowing money that has to be repaid, usually with interest, while ownership stays exactly where it was.
Neither is inherently better. The right choice depends on how much control you are willing to share, how confident you are in near-term cash flow, and what the capital is actually being used for.
Equity Financing: What You Gain, and What You Give Up
Bringing in an investor in exchange for shares can be the fastest way to access substantial capital, and it comes with real advantages beyond the money itself:
No repayment obligation. Unlike a loan, equity capital does not have to be repaid on a fixed schedule, which takes pressure off cash flow in the early years.
Access to expertise and networks. The right investor brings experience, contacts and credibility alongside their capital, often opening doors a loan never could.
A debt-free balance sheet. Equity capital does not appear as a liability, which can make the business more attractive to lenders or investors later on.
Capital that can move quickly, once the right investor is found and terms are agreed.
The trade-offs are just as real. Selling shares means giving up a percentage of ownership permanently, sharing decision-making authority with people who now have a formal stake in how the business is run and, depending on the structure, an ongoing obligation to share profits with your investors indefinitely. Getting the relationship wrong — a personality clash, misaligned expectations about growth or exit — is far harder to unwind than paying off a loan early.
Debt Financing: What You Gain, and What You Give Up
Borrowing keeps ownership and decision-making exactly where they are, which is why it remains the default route for many businesses:
Full ownership and autonomy retained. No shares change hands, and no one outside the business gains a say in how it is run.
Interest relief. Where borrowed money is used wholly and exclusively for business purposes, HMRC generally allows the interest as a deductible expense against trading profits, effectively reducing the real cost of borrowing.
Scaled to what you actually need. A loan can be sized precisely to the investment required, rather than raising more than necessary just to make an equity round worthwhile.
Full profits retained after repayment, with no ongoing share of future returns owed to anyone once the loan is cleared.
The costs are equally direct: interest payments reduce profitability for as long as the loan runs, arrangement fees add to the real cost of borrowing, and lenders often require collateral or a personal guarantee — meaning a business failure can carry personal financial consequences for the owner. Navigating the range of loan products on offer, and timing repayments against when the investment actually starts generating returns, is where many businesses get the arithmetic wrong. A realistic cash flow forecast is the starting point.
Government-Backed Routes Worth Knowing About
Beyond a conventional bank loan or private equity investment, several government-backed schemes exist specifically to help UK businesses raise capital. GOV.UK’s own finance and support finder lists well over a hundred loan, grant and equity schemes, searchable by business stage, industry and region. Four are worth knowing first:
Start Up Loan
A government-backed personal loan for anyone starting or running a UK business that has been fully trading for less than five years. It comes with free business planning support and up to 12 months of free mentoring.
Start Up Loan on GOV.UK →Growth Guarantee Scheme
Term loans, overdrafts, asset finance, invoice finance and asset-based lending, with the government’s guarantee to the lender helping businesses access finance they might not otherwise secure on their own terms.
Growth Guarantee Scheme on GOV.UK →Seed Enterprise Investment Scheme (SEIS)
Investors can claim relief on up to £200,000 a year, a powerful incentive that makes your business a materially more attractive proposition to the right investor.
SEIS on GOV.UK →Enterprise Investment Scheme (EIS)
Investors receive relief on up to £1 million a year (£2 million where at least £1 million goes into knowledge-intensive companies).
EIS on GOV.UK →Getting the Structure Right Before You Raise
Every one of these routes comes with its own eligibility rules, application process and long-term implications for how the business is owned, taxed and run — and the paperwork is only the visible part. The real decision is upstream of any application: how much capital does the business actually need, what will it be used for, and which route leaves the business better positioned three years from now, not just better funded next month?
Getting that analysis wrong is far more expensive to unwind than the time it takes to get it right the first time. It is the same discipline as good budgeting: start from the evidence, then decide.
How We Help You Raise and Structure Capital
Raising capital well takes more than filling in an application, and it is exactly the kind of decision a part-time Financial Director is built for — expertise at board level, without the overhead of a full-time hire. Our Fractional CFO service covers:
Assessing how much capital you actually need, and matching it to the right mix of equity and debt for your circumstances.
Preparing the financial case, forecasts and board-ready materials investors and lenders actually want to see.
Navigating government-backed schemes, including Start Up Loans, the Growth Guarantee Scheme, SEIS and EIS eligibility.
Structuring the deal, so equity dilution, loan terms and tax treatment all work in the business’s long-term favour.
Ongoing financial leadership, once the capital is raised, so it is deployed with the same discipline it took to secure.
Quick Questions
What is the difference between equity and debt financing?
Equity financing means selling a share of the business in exchange for investment, with no repayments but a permanent loss of some ownership. Debt financing means borrowing money that must be repaid, usually with interest, while ownership stays the same.
What is a Start Up Loan?
A government-backed personal loan of £500 to £25,000 at a fixed 7.5% a year for people starting or running a UK business that has been fully trading for less than five years, with free business planning support and up to 12 months of mentoring.
Can I claim tax relief on business loan interest?
Generally yes, where the money is borrowed wholly and exclusively for business purposes, HMRC allows the interest as a deduction against trading profits. Where a loan funds both business and private spending, only the identifiable business portion qualifies.
Why Businesses Choose Finance Equation
We are an award-winning, ACCA-regulated practice with more than 30 years advising businesses across London on financing, structure and growth — including raising over £65 million in commercial finance for clients and securing £3.7 million for a lease purchase alongside a factoring negotiation that capped director liability at just £10,000. That is the kind of experience a capital raise actually needs, not a generic checklist.
Because we are chartered certified accountants first, every recommendation is grounded in your business’s real numbers and its real circumstances — so the capital you raise is structured to serve the business for years, not just to close the immediate gap.
Sources
- Apply for a Start Up Loan — GOV.UK
- Growth Guarantee Scheme — GOV.UK
- Apply to use the Seed Enterprise Investment Scheme to raise money for your company — GOV.UK
- Apply to use the Enterprise Investment Scheme to raise money for your company — GOV.UK
- Venture Capital Schemes: tax relief for investors — GOV.UK
- BIM45690 — Specific deductions: interest, funding the business — HMRC internal manual, GOV.UK
- Finance and support for your business — GOV.UK