How companies are financed: equity, banks and alternatives

Every company needs funding at some stage. The right mix depends less on what is available and more on the stage of the business and the nature of its cash flows.

Equity

Owners’ money, retained profits or new investors. Equity carries no fixed repayment, which makes it suited to early stages and riskier projects, but it dilutes ownership and investors expect a higher return.

Bank financing

Term loans, overdrafts and project facilities. Banks lend against predictable cash flows and security, and they expect clear reporting and covenants to be met.

Alternatives

• Supplier credit and customer advances
• Leasing and sale-and-leaseback
• Securitisation of receivables
• Sukuk and bonds for larger issuers

A funding request succeeds when the lender can see the use of funds, the repayment source and the downside case on one page.