Why you should choose debt finance to fund business growth

Why you should choose debt finance to fund business growth

Why you should choose debt finance to fund business growth

The finance landscape has changed. It’s no longer a case of choosing between traditional term loan debt finance or relinquishing equity. Alternative lenders now offer a range of flexible, growth-focused finance products. The key is choosing the right one for your business. Here we show how Pay4 offers something different. That works.

Capital is fundamental to business growth. Until recently, it was relatively easy to secure. Mainstream lenders offered cheap, accessible debt finance to businesses to fund their growth. Then came the financial crisis. For many businesses, ambitions of growth have had to be sidelined or postponed, due to the lack of available finance. While others seek out external investment and relinquish equity, control and ownership of their businesses to secure necessary funds.

Equity or debt: the old dilemma

For SMEs, equity financing means raising capital by selling shares of a business to external investors. The investors inject capital into the business and become partial owners. In return they receive a share of the business’s profits over time, usually expected within three to five years.


The main benefit of equity financing for many businesses is that repayment is not required. Capital raised through equity financing does not accrue interest or require monthly repayments. You’re under no obligation to repay the investment. Investors take on the risk themselves.

However, equity finance is not a completely flexible, no-strings solution. When selling equity, you also hand over rights and decision-making input over your business. Some investors are relatively hands-off, yet many others have plenty to say about how you run your business. Ownership of the company is diluted.

Traditionally, debt finance is a more simple proposition. You borrow a lump sum from a bank, and repay that sum over the agreed term of the loan, with interest added. As long as the repayments are made, there is no interference or involvement in your business from the lender. Repayment terms are clear, and future profits do not need to be shared.


A common misconception around debt finance is that it is more costly than equity finance. Although this may seem true in the short term, investors generally seek a higher return from their investments than do lenders. Equity financing is a greater risk to the investor than debt financing is to the lender. This makes the cost of equity often higher than the cost of debt.

Lenders also have primary claiming rights over business assets should a borrower business go into liquidation. This reduces the risk of loss in the event of default. A safer debt investment requires less cost compensation


Equity finance is often seen as the solution for businesses looking for ‘more than money’. Investors can provide advice, contacts, and mentorship to business owners (whether wanted or not). It’s normally used for high-cost, long-term growth and development funding.

Debt finance has been traditionally chosen for swift, lower cost projects and expenses by businesses who want to retain control.

Combining Equity and Debt Finance

Yet the choice between equity and debt finance is no longer a case of ‘one or the other’. In order to create a well-rounded, agile financial strategy, many equity-funded businesses also use debt. As long as the form of debt doesn’t threaten the company in more difficult times, many equity owners welcome certain debt uses. If they can see the potential to help enhance their investment returns.

These ‘blended solutions’ offer businesses the chance to combine both equity and debt finance funding to facilitate long-term growth as well as tactical operations. Cash can be available to fund opportunities and process optimisations that form part of a wider, investor-led growth strategy. Choosing the right form of debt finance is crucial to achieving this balance. Flexibility and cost-effectiveness are key. And the finance landscape has evolved dramatically over the past several years.

The Evolving Debt Finance Landscape

Debt financing now comes in many forms. It’s no longer about simply securing a small business loan from a big bank. Alternative finance providers have made it easier for businesses to secure the right form of finance to match their specific needs. The range of debt finance products now available includes:

  • Term loans
  • Lines of credit
  • Business credit cards
  • Invoice finance
  • Overdrafts
  • Supply chain finance
  • Merchant cash advances

For the majority of businesses, term loans remain the most popular form of debt finance. Yet there is a more flexible, cost-effective, and growth-focused option available. Offering a revolving credit facility that is tailor-made to support growth, it’s fast becoming the working capital solution of choice for growing businesses.

Pay4 – A debt finance revolution

Debt finance traditionally meant securing a loan for fixed amount for a fixed term, and paying it back with interest. The amount borrowed could only be used once. A business generally had to wait until the initial loan was fully repaid before applying for another. This rigid format and regularity of repayments is often portrayed as a positive when planning finances and forecasting.

However, it also inhibits the ability to respond to unexpected opportunity. Businesses with seasonal, inconsistent or cyclical cash flows can also find a rigid monthly repayment schedule restrictive.

A different approach

Revolving credit facilities are sometimes criticised for having high commitment fees, minimum notice periods before advances are made, or limits on the amount that may be drawn at any one time.

Pay4 offers something different. Our revolving credit facility is designed throughout to offer the flexibility and cost-effectiveness business require to fund their growth. We do not charge commitment fees. We do not require a minimum notice period. And we also do not limit the amount you can draw down at any one time (within your agreed credit limit).

Pay4 has zero setup costs and offers up to 120 days credit on cash advances with facility sizes based off the balance sheet strength of the business. Furthermore, with no punitive non-usage fees, Pay4 is ready to be used over and over again to fund opportunity as it arises. You choose when to pay back, up to 120 days. We only charge a simple transaction fee.

This is the simple beauty of the Pay4 revolving facility. A true revolution in debt finance.

Here are just some of the benefits that Pay4 can provide for your business:

Works alongside existing finance

Pay4 is insurance-backed, and doesn’t take security off any business assets. This means that it can be used in conjunction with any existing or future forms of finance, including equity finance. The exposure to risk is far lower than many other debt finance solutions including asset-based finance, making it preferential to investors as well as business owners.

Added liquidity to strengthen your business

Because there are no setup costs or ongoing non-usage fees, you can have Pay4 credit ready and available in the background. As an integral part of a long-term working capital finance program. This provides extra liquidity for your business, strengthening it and bringing stress levels down for both shareholders and management teams.

Increases profit potential

Say your business is experiencing high demand, yet can’t buy enough stock because of a lack of cash. If there is a margin on your sales cycle you can use Pay4 many times throughout your financial year to maximise profits.

For example, a £100,000 facility is granted for a company with an order and stock turn cycle of 60 days and a margin of 20%. They could effectively use the £100K every 60 days. They could turn that £100K into £120K (minus fees). This means a profit every 60 days that they would not otherwise be earning of just under £20k. In one year the business would make an extra profit of around £100,000.

Smarter use of working capital

A common misconception about revolving credit is that it can be more costly than fixed-asset debt such as mortgages. Although this may be true in certain instances, the benefits of using Pay4 far outweigh any costs incurred. One of the distinct benefits of Pay is that it injects cash at a crucially early point in the working capital cycle. This can be used to pay suppliers without the need to raise customer invoices beforehand. It’s there, ready for when you need it.

This means Pay4 can be used to negotiate prompt payment and bulk buying discounts with suppliers without opening gaps in working capital. Allowing businesses to simultaneously offer preferential customer terms to create end-to-end supply chain optimisation. Our customers can therefore completely offset the cost of finance and use their own funds to help the business grow in other areas.

Optimises for opportunity

Because Pay4 is so flexible, it can be used in many ways to optimise your business processes to seize opportunities as they arise, thereby energising its growth.

  • Stock optimisation means no loss of sales or tied up capital
  • Orders fulfilled, preserving company reputation
  • Machinery repaired promptly to avoid service interruption
  • Capital available to hire staff as needed
  • More cash in the business for research and development
  • Presents a stronger proposition for potential shareholders

The key to these benefits lies in the flexibility and simplicity of the Pay4 product. A revolving credit facility that’s insurance-backed. A swift application process. Zero non-usage fees. 120 days credit. And ready to pay any suppliers.

Pay4 has revolutionised the debt finance landscape, offering a simple, elegant solution that works alongside both equity and debt finance. With so many benefits to incorporating it into your financial strategy, the question you should be asking yourself is: Can my business afford not to use Pay4?

Why you should choose debt finance to fund business growth