How debt financing works

If your company is well established and needs more than £1 million in growth capital, we believe debt financing is one of the best methods of raising funds.

Debt financing enables you as a business to borrow a defined amount of money for a pre-agreed term at a pre-agreed interest rate (the lender remuneration for lending you the money). Interest is then paid on the amount borrowed at a pre-agreed frequency (monthly, quarterly, annually or at maturity) that suits your business.

When the loan reaches maturity, you will then need to repay the amount you borrowed back to the lender. Alternatively, if the loan is amortising you will repay the amount in regular agreed instalments similar to a mortgage (each payment having an interest and capital repayment element).

Example:

Non-amortising loan

Business A borrows £1,000,000 at 6% interest paid annually for five years.

Business A pays £60,000 every year on the anniversary of the raise and repays £1,000,000 on the fifth anniversary.

Amortising loan

Business A borrows £1,000,000 at 6% interest paid annually for five years.

Business A pays £237, 396 (interest plus capital) every year on the anniversary of the raise.

Debt financing comes in various forms including loans and bonds. CODE Investing provides businesses with access to a wide range of funding sources, delivering our expertise to help prepare an investor pack to attract potential lenders. We will work closely with you, guiding you in choosing the best financing options for your business.

Why raise funds through debt financing?

Even established companies can find it hard to access capital in order to grow their business. More traditional lenders can be reluctant to help out, and offering equity may not be your preferred choice if your business is turning a healthy profit.

If your company is stable and well-established, debt financing can make perfect sense, providing your company has the assets to borrow against and can generate enough cash flow to service the interest on the loan.

This is why debt financing is often the more logical choice for established, high growth businesses. CODE Investing provides just such businesses with an efficient route to raise capital from a pool of diversified investors.

The benefits of debt financing

Debt financing allows you to keep full ownership

Debt does not dilute your ownership (as opposed to equity), so you keep control of the business

Budgeting can be easier with debt financing

Principal and interest obligations are both known amounts (assuming a fixed rate loan), enabling you to match interest and repayment with your present and expected income. Preparing budgets and forecasts also becomes easier with known costs

Interest from debt financing funds is tax deducatable

Interest on the debt is tax deductible, lowering the actual cost of the loan (it is charged BEFORE tax) on your yearly income statement

Future profits stay within the company

Any future profits* stay with the business. Investors are entitled to repayment of the agreed-upon principal of the loan plus interest only, unless the bonds are convertible

You can use debt funding in several ways

Debt can be used to finance equipment acquisition, offices, expansion, working capital, stock, receivables or investments

Bonds can be convertible, meaning you can attract a broader spectrum of potential investors by offering them a future share in the success of your business in exchange for a lower interest payment

*After interest and the principal are repaid

How CODE Investing can help you

We offer a range of different instruments and formats to help you get the financing you need, from secured*, unsecured, and/or convertible mini-bonds to institutionally funded loans. Using our expertise and guidance, we can advise you on the borrowing instruments options available to your business.

Apply now and talk to us about the best way for you to raise capital with CODE Investing.

*Types of security may include real estate, insurance policies, savings accounts and equipment.

Stay informed and sign up to our monthly newsletter