Choosing the right growth finance for scaling businesses
Equity: when dilution makes sense
Venture capital is suited to high-growth businesses targeting large markets, where speed matters more than short-term profit. Investors take a stake and often require board seats, liquidation preferences or anti-dilution rights.
For more mature companies (£10 million+ revenue), growth equity provides expansion capital without ceding full control, while majority private equity involves investors taking control, often linked to buy-outs or acquisitions. The latter only works if cashflows can handle leverage.
Equity crowdfunding (Seedrs, Crowdcube) can top up institutional rounds and engage loyal customers, though future investors may dislike dispersed ownership. At the larger end, IPOs still provide liquidity and profile, though London’s listing market has slowed.
Debt: growth without giving away shares
Debt avoids dilution if your numbers support it. Bank loans and revolving credit facilities (RCFs) are the cheapest options for profitable businesses, though covenants and security are standard.
Asset-based lending (ABL) and invoice finance unlock value from receivables, stock, or plant, making them useful for working-capital needs but less relevant to IP-heavy firms.
Venture debt, once the preserve of specialist funds, is now also offered by UK banks. It extends runway for VC-backed companies, usually combining interest with warrants that create modest dilution.
Private credit funds provide larger, flexible packages such as unitranche or mezzanine finance — useful for acquisitions or capex, though more costly than bank debt. At the smaller end, merchant cash advances suit retail or hospitality with card sales, but high costs make them a last resort.
Cashflow, trade and non-dilutive support
Other tools keep liquidity moving. Supply chain finance leverages a buyer’s credit rating to help suppliers get paid early, while trade and export finance, often backed by UK Export Finance (UKEF), supports long international payment cycles.
Meanwhile, non-dilutive funding should not be overlooked. Grants, especially through Innovate UK, de-risk technical projects. The UK’s R & D tax relief scheme, reformed in April 2024, offers a 20% expenditure credit for most firms, with higher support for R & D-intensive SMEs. Both reduce burn and extend runway.
A framework for decision-making
To choose the right option, ask three questions:-
• What’s the job to be done? Working capital, capex, runway, or M & A?
• How much do you need? Small (£1–5m), medium (£5–20m), or large (£20m+)?
• For how long? Short (<12 months), medium (1–3 years), or long (3–7 years)?
Match these and the answers fall into place: invoice finance suits small, short-term needs; venture debt works for mid-sized runway extensions; private equity or credit fund major, long-term acquisitions.
The pre-flight checklist
Before committing, check:-
• What exactly is the funding for?
• How much do you truly need — base, best and worst case?
• How long will you need it?
• Does your financial profile (EBITDA, assets, or investor backing) support it?
• What’s in the fine print — covenants, fees, security, warrants, or investor protections?
Final thought
Growth finance isn’t about chasing the cheapest or flashiest money. It’s about securing the right funding fit for your stage of growth. Match the purpose, amount and timeframe and you’ll scale on your terms. Mis-match them and even generous funding could become an expensive mistake.
