The World of Begging, Borrowing, and (Legally) Taking Other People's Cash

When Your Own Money Has Run Out: Begging, Borrowing, and (Legally) Taking Other People's Cash

Remember when we talked about internal sources of finance - using your own money to fund your business? Yeah, that was a great story. But here's the problem: In business eventually, you run out.

Your personal savings? Gone. Your retained profit? Spent. That old delivery van you sold? Already sold. And now you need another £500,000 to expand or £20,000 to update your technology, and you're staring at an empty bank account thinking, "Right, now what?"

This is where external sources of finance come in. It's money from outside your business - other people's cash that you can use to grow. And unlike internal sources, there's potentially loads of it. The problem? It usually costs you, it usually costs you a lot.

External Finance: Shares vs Loans

External finance comes in two main varieties:

1. Share capital (selling ownership of your company)

2. Loan capital (borrowing money and paying it back with interest)

You can either give someone a slice of your business (shares) or promise to pay them back later with extra money on top (loans). Both have their pros and cons, and understanding the difference is what separates smart business owners from bankrupt ones.

Share Capital: Selling Your "Baby" (But Only a Bit of It)

Share capital is when a limited liability company raises money by selling shares - little chunks of ownership - to investors. You get cash immediately, and in return, investors own a piece of your business.

The big moment for this is an Initial Public Offering (IPO) - when a company sells shares on a stock exchange for the very first time. In 2024, just 18 companies did IPOs in London, the lowest number since 2010, but those that did IPO performed brilliantly - averaging 36% returns for investors!

IB Business Management Real-life Example: One of the biggest UK IPOs in 2024 was Raspberry Pi, which raised £172.9 million when it listed on the London Stock Exchange. That's proper money. And Raspberry Pi didn't have to pay it back - it's not a loan. But they did give away ownership stakes to those investors.

Only publicly held companies (public limited companies, or PLCs) can trade shares on a stock exchange. Your local corner shop can't just rock up to the London Stock Exchange and start flogging shares. But big companies like Greggs, Tesco, or potentially Monzo (the digital bank valued at $5.9 billion that's eyeing an IPO) can.

The downside? Selling shares dilutes ownership. If you own 100% of your company and you sell 20% to investors, you now only own 80%. Your control is reduced. Your slice of future profits is smaller. But hey, at least you've got the cash to actually generate future profits.

Loan Capital: Pay Now, Pay Later (With Interest)

If giving away ownership makes you queasy, there's the option of loan capital - borrowing money from lenders like banks.

Loan capital includes things like:

• Mortgages (long-term loans secured against property)

• Debentures (corporate bonds secured against specific assets)

• Bank loans (the classic "we'll lend you money if you promise to pay us back" arrangement)

With loans, you keep 100% ownership of your business. Nobody gets to tell you what to do. The trade-off? You're paying interest, and if you can't pay back the loan, the lender can seize your assets.

IB Business Management Real-life Example: In 2024, UK asset finance and leasing grew by 3%, with businesses borrowing billions to purchase equipment and vehicles. That's proper loan capital in action - companies borrowing to buy stuff they need to operate.

Mortgages are particularly common for property. If you're opening a restaurant and need to buy the building, you'll probably get a mortgage - a long-term loan where the property itself is the collateral (security). If you don't pay, the bank takes the building. Simple, brutal, effective.

Debentures (also called corporate bonds) are similar but aimed at bigger companies. They're loans where investors lend money to the business, get some interest, and if the company goes bust, debenture holders get paid before shareholders do. Nice deal for them, bit nerve-wracking for you.

Overdrafts: The "Oh God We Need Cash NOW" Option

When you become a university student, like the rest of us, you will be introduced to the world of overdrafts at the end of the month. Businesses do the same thing.

An overdraft lets a business withdraw more money than it actually has in its account. It's essentially a short-term loan that kicks in automatically when you run out of cash.

The good news? It's there when you need it, perfect for emergencies or temporary cash flow problems. The bad news? The interest rates are brutal. Banks charge high rates on overdrafts because they're short-term and risky. If you are a student you probably still have access to an interest free overdraft account like I did.

Small businesses use overdrafts constantly. It's the business equivalent of "I'll get paid Friday, I just need to survive until then." Not ideal, but sometimes necessary.

Trade Credit: Buy Now, Pay in 30-60 Days

Trade credit is when suppliers let you have goods or services now and you pay them later. Usually 30-60 days later.

This is massively common. Your local café might order coffee beans on trade credit - they get the beans in January, sell loads of lattes, and pay the supplier in February. Cash flow sorted.

Two specific types you should know:

Credit cards give you interest-free credit if you pay the balance on time. Miss the deadline and you're paying interest. Businesses use corporate credit cards for this exact reason - buy stuff now, pay the bill later, keep cash flowing.

Hire purchase (HP) is for big assets like vehicles or machinery. You pay in instalments over time, and the finance company owns the asset until you make the final payment. Then it's yours. It's like getting a car on finance - you're driving it, but technically it's not yours until you've paid everything.

Crowdfunding: When People Become Your Bank

Right, this one's properly modern. Crowdfunding is raising small amounts of money from loads of people, usually through online platforms like Crowdcube or Indiegogo.

IB Business Management Real-life Example: BrewDog famously used crowdfunding to build a £2 billion craft beer empire - early investors who bought £230 shares in 2010 saw them worth £6,590 by 2017, a 2,765% return!

Revolut, the fintech unicorn, also used crowdfunding and gave early investors a 400x return when the company hit a $45 billion valuation. Way to go.

The beauty of crowdfunding? If you structure it right (often as rewards or donations rather than loans), it can be interest-free and repayment-free. You're essentially getting free money from supporters who believe in you and in your product.

However, UK crowdfunding deals dropped to 297 in 2024, the lowest since 2017, with total investment falling to £324 million. The hype has cooled a bit, but it's still a solid option for startups that can't get bank loans.

The drawback? Each person only chips in a small amount, so raising huge sums is difficult. You might get 500 people giving you £100 each - that's £50,000, which is brilliant, but not enough to buy a factory.

Leasing: Use It Without Buying It

Ever leased a car? Businesses do this with equipment, computers, vehicles, machinery - all sorts.

Leasing means you pay a monthly fee to use an asset, but you never actually own it. The leasing company owns it, maintains it, and when your contract ends, you give it back.

Schools lease computers and photocopiers. Businesses lease delivery vans. It's a way to access expensive assets without the massive upfront capital expenditure.

Key difference from hire purchase: With HP, you eventually own the asset. With leasing, you never own it. You're essentially renting.

Asset leasing in the UK grew 15.4% to £330.7 million in 2024, showing how popular this method has become for businesses that need equipment but don't want to drain their cash reserves buying it outright.

Microfinance Providers: Banking for People Who Can't Access Banks

Most external finance assumes you've got something - a business plan, collateral, a credit history. But what if you don't?

Microfinance providers offer small loans to unemployed or low-income people who traditional banks would laugh out the door. They're about giving people a chance to become self-sufficient by starting tiny businesses.

The loans are small - we're talking hundreds or a few thousand pounds, not millions. The interest rates are lower than regular banks. And while around half the world lives on less than $2 a day, microfinance provides crucial poverty relief and job creation in developing economies.

The criticism? Some say it's unethical to profit from poor people. Others argue it's too small-scale to make real change. It's a debate, but for individuals trying to start micro-businesses, it's often the only option. Like in business and in life for some it works well, for others not so well.

Business Angels: Rich People Who Like Taking Big Risks

Finally, let's talk about business angels - wealthy individuals who invest their personal money in high-risk startups with massive growth potential.

IB Business Management Real-life Example: Between 2011 and mid-2025, UK angel networks participated in 3,636 deals worth £5.32 billion, with 2021 being the peak at £850 million. That's serious cash.

South East Angels alone invested £2.4 million across 27 startups by 2024, with 46% of investments going to female-led founding teams.

Business angels are brilliant if you can get them because they bring much more than just money - they bring experience, connections, and expertise. Many are former entrepreneurs who've already built and sold businesses. They know what they're doing, they have a solid business network that can also work well for you.

But they're also taking huge personal risks. If your startup fails, they lose everything they invested. To compensate, they usually demand partial ownership and control. Your business, their rules (partially).

In the UK, angel investors typically invest between £25,000 and £500,000 per startup, focusing on early-stage companies with high growth potential.

What To Take To Your IB Business Management Course

External sources of finance are about accessing other people's money when your own runs out. Whether it's:

• Selling shares (give away ownership, keep the cash)

• Taking loans (keep ownership, pay interest)

• Using overdrafts (emergency cash, high rates)

• Trade credit (buy now, pay later)

• Crowdfunding (small amounts from loads of people)

• Leasing (use assets without buying them)

• Microfinance (small loans for those without options)

• Business angels (rich people betting on your success)

Each option has trade-offs. The trick is knowing which one fits your exact situation.

Despite 2024 being one of the quietest years for London IPOs, there's cautious optimism for 2025 as policy reforms and a robust pipeline create new opportunities.

Most successful businesses use a combination - internal sources to start, then carefully selected external sources to scale. Nobody funds a billion-pound company purely from personal savings. Eventually, you need outside help.

Just make sure the help doesn't cost you the business itself.

Stay well,