Debt financing is the process of raising capital by borrowing money from lenders, which must be repaid with interest over an agreed period. Unlike equity financing, it preserves full ownership of your company whilst providing funds for growth, making it suitable for businesses with stable cash flows.
Debt financing is raising capital for your company by borrowing money from lenders such as banks or alternative finance providers. You receive funds upfront and agree to repay the principal amount plus interest over a fixed period, preserving your full ownership unlike equity deals. This method suits established businesses with predictable revenues able to service repayments.
When pursuing debt financing, lenders assess your company's creditworthiness through financial statements, cash flow projections, and collateral. Terms vary by loan type, with secured loans requiring assets as guarantee whilst unsecured options rely on credit history. Interest rates depend on risk, typically higher for startups than mature firms.
Irish companies access debt financing via bank loans, government schemes, or invoice financing. The Companies Registration Office requires no specific filings for borrowing alone, though charges over assets must register within 21 days. Debt provides non-dilutive capital ideal for expansion without investor involvement.
Debt financing requires fixed repayments regardless of profits, adding pressure on cash flow but avoiding ownership dilution. Equity financing exchanges shares for capital with no repayment obligation, aligning investor success to yours yet reducing control. Debt suits profitable firms whilst equity fits high-growth startups.
Lenders prioritise repayment security over upside, demanding collateral or guarantees. Equity investors seek exponential returns through exits, accepting higher risk. Many use both strategically, debt for stability post early equity rounds preserving founder stakes.
Term loans provide lump sums repaid over set periods, ideal for equipment purchases. Working capital loans fund daily operations whilst revolving credit facilities offer flexible drawdowns like overdrafts. Invoice financing advances cash against unpaid invoices bridging payment gaps.
Asset-based lending uses inventory or receivables as collateral suiting asset-rich firms. Government-backed schemes like Strategic Banking Corporation of Ireland enhance access for SMEs. Convertible loans blend debt equity converting to shares at discounts during funding rounds.
Commercial banks like AIB Bank of Ireland dominate traditional lending assessing via rigorous criteria. Non-bank lenders offer faster approvals higher rates targeting underserved segments. Enterprise Ireland provides state-supported debt for innovative SMEs alongside grants.
Invoice financiers advance against receivables whilst peer-to-peer platforms connect borrowers investors. Venture debt firms specialise in growth-stage tech extending runways post-equity without dilution. Select providers matching your stage risk profile.
Debt financing retains full ownership control avoiding equity dilution investor oversight. Interest payments tax-deductible reducing effective cost. Predictable repayments aid planning unlike variable dividends.
Builds credit history facilitating future borrowing. Suitable leveraging assets generating returns exceeding interest rates. Non-dilutive preserves upside for founders employees.
Fixed repayments strain cash flow especially downturns risking default. Collateral requirements personal guarantees expose assets. Higher interest versus equity cost though tax-advantaged.
Covenants restrict operations dividend payments. Rejection common for unprofitable startups lacking collateral. Debt overhang deters equity investors future rounds.
Irish startups access debt via bank term loans requiring solid projections collateral. SBCI schemes guarantee portions reducing bank risk enabling approvals. Invoice discounting provides immediate cashflow against receivables suiting service firms.
Venture debt follows equity rounds extending runway without dilution. Lenders file charges CRO securing positions. Repayment schedules align milestones ensuring discipline.
Opt debt financing generating steady cash flows servicing repayments without dilution needs. Post-profitability leverage assets conservatively. Avoid early-stage high-burn lacking security.
Blend strategies post-equity financing using debt scale proven models. Assess capacity obligations before committing preserving flexibility.
