Exploring financing options for business expansion

In business, things rarely stand still so the life cycle of most companies will at some point see them looking at expansion as a natural next step.

Whether it’s entering new markets, scaling production or upgrading technology, this growth will require capital – and choosing the right financing option can significantly influence the success of an expansion strategy.

So, when seeking to access finance, it is essential to look around, get good advice and consider the many options and different types of funding.

Matching options to business stage and type

The choice of financing depends heavily on the stage and nature of the business. For example, early-stage startups may prioritise equity or Venture Capital ( VC) funding due to limited credit history. Meanwhile, mid-sized firms with consistent revenue might opt for loans or bonds to avoid giving up ownership. Mature businesses, aiming for large-scale expansion, often mix debt and equity financing to optimise capital structure and minimise risk.

Businesses looking to expand can consider several financing methods, including:

Debt finance

Traditional debt finance is in the form of loans or commercial mortgages from a lender, paying back capital and interest over a set term. One of the biggest changes in accessing debt finance in recent years is the increase in the number of different providers, often referred to as the challenger banks. The challenger banks aim to disrupt the market by offering new concepts in banking. They are changing how banking and payments work, offering new and innovative solutions where the technology takes the strain off the banking process and aims to improve the experience for the customer.

Invoice finance and factoring

This is a way for businesses to borrow money against the amounts due from customers. Invoice financing helps businesses improve cash flow, pay employees and suppliers, and reinvest in operations and growth earlier than they could if they had to wait until their customers paid their balances in full.  It is well-suited to fast growing businesses.

Asset-based lending (ABL) 

ABL blends invoice finance with funds released against other business assets, such as stock, property, plant and machinery. It provides additional capital that invoice finance alone could not realise.

The Growth Guarantee Scheme

This government-backed scheme from the British Business Bank, launched in April 2025, enables smaller business to access finance for investment and growth. A successor to the Recovery Loan Scheme, it supports facilities up to £2million, with the government providing lenders with a 70% guarantee.

Equity Finance

Equity Finance is the process of raising capital through the sale of shares. Equity financing is distinct from debt financing; in debt financing, a company assumes a loan and pays back the loan over time with interest, while in equity financing, a company sells an ownership share in return for funds. These funds do not have to be paid back, although the company may choose to make dividend payments to its shareholders.

Sources of equity finance:

• Business Angels – An angel investor (also known as a private investor, seed investor or angel funder) is a high-net-worth individual who provides financial backing for start-up or expansion capital. It can often be friends and family who are the angel investor. There are regional groups of business angels, and a national trade body: The UK Business Angels Association ukbaa.org.uk
• Private Equity – Private equity is medium to long-term finance provided in return for an equity stake in potentially high-growth unquoted companies. Private equity firms will typically look to hold investments for between four and seven years, at which time they will look to sell, or ‘exit’, their stake, either on the stock market, to a corporate buyer or to another investor. The British Private Equity & Venture Capital Association (BVCA) is the industry body for the private equity and venture capital industry in the UK bvca.co.uk
• Crowdfunding – Crowdfunding is the use of small amounts of capital from a large number of individuals to finance a new business venture. Crowdfunding makes use of the easy accessibility of vast networks of people through social mediaand crowdfunding websites to bring investors and entrepreneurs together.
• Venture Capital (VC): VC funding is ideal for innovative businesses in fast-growing industries. Venture capitalists provide not only funding but also mentorship and access to networks. However, they often demand significant control over business decisions and expect high returns within a few years.

Other specialist funds in the Southwest:

• South West Investment Fund – £200m fund offering commercial finance with loans from £25,000 to £2m and equity up to £5m, operated by the British Business Bank, which is the government’s economic development bank.
• Start Up Loans – also from the British Business Bank, offers loans of up to £25,000 per director to a maximum of £100k at 6% fixed interest rate per annum, repayable over one to five years.
• FOLK2FOLK: South West-based peer-to-peer lender offering property secured loans from £100k.
• Foresight South West fund – £100M to invest in SMEs across the South West, focus on business with £0.5 – £5M EBITDA and £1M to £10M investments.

Key Considerations in Securing Funding

Securing financing requires thorough preparation and a clear understanding of what financiers seek. Lenders typically assess a company’s creditworthiness, cash flow and business plan to gauge risk and repayment capacity. Investors, on the other hand, look for high-growth potential, competitive advantage and a capable management team.

To improve the chances of securing funding:

• Prepare a solid business plan: A clear, well-researched plan demonstrates the viability of the expansion strategy. It should include financial forecasts, market analysis and strategic goals.
• Organise financial records: Transparent and accurate financial documentation builds trust and credibility with lenders and investors alike.
• Understand valuation and ownership Impacts: For equity financing, know your business’s value and how much control you are willing to relinquish.
• Negotiate favourable terms: Be proactive in discussing interest rates, repayment schedules, equity percentages and governance rights.
• Plan for repayment or exit strategies: Whether it’s repaying a loan or planning an investor exit, managing financial obligations responsibly is essential for sustained growth.
• Take professional advice.

Need support choosing the right funding for your expansion plans? We’re here to help. Contact Westcotts to speak to one of our Corporate Finance advisers.