Equity finance for UK businesses
Equity finance helps UK businesses raise capital without taking on debt. Explore equity funding options and alternatives with Funding Options by Tide’s FCA-regulated panel of 120+ lenders and investors.
Last updated: November 2025, edited by Joe Morley, reviewed by Vivek Seda
Equity finance: what it is and how it works
What is equity finance?
Equity finance is when a business raises capital by selling shares in the company to investors. In exchange for funding, the investor gains partial ownership and a stake in the business’s future success.
This type of finance is popular with startups and scale-ups that want to grow fast, fund innovation, or avoid the risks associated with debt repayments.
How does equity finance work?
Equity finance allows you to raise funds from:
Angel investors – private individuals investing early-stage capital
Venture capital firms – institutional funding for high-growth potential
Private equity – typically for more mature, profitable businesses
Equity crowdfunding – raising smaller amounts from many investors online
In return, investors typically receive equity (shares) in your business and may take dividends or earn a return when the company is sold or goes public.
Common use cases
Launching a startup
New businesses often use equity funding when they have big ideas but limited trading history, making debt finance harder to access.
Scaling operations
If you’re expanding your team, entering new markets, or increasing production, equity finance can provide the capital to accelerate your plans.
Research and development
Developing new products or technology can take time and money. Equity investment can support innovation without early cash flow pressure.
Marketing and brand growth
Funds can be used to grow brand visibility, scale paid campaigns, or rebrand to better position your company.
Bridge to IPO or acquisition
Equity funding is often used ahead of major milestones like an IPO or company sale to boost valuation and visibility.
Is equity finance right for your business?
It could be the right fit if:
You’re a startup or early-stage business with growth potential
You’re looking for more than just funding—such as mentorship or access to networks
You’re comfortable giving up partial ownership
You plan to scale rapidly or seek exit in 3–7 years
You struggle to access traditional debt finance
Drawbacks of equity finance
❌ Loss of control - you may need to consult investors on strategic decisions
❌ Dilution of ownership - your share in the company is reduced
❌ Longer lead times - raising equity can take weeks or months
❌ Investor expectations - high growth expectations can add pressure
❌ More reporting obligations - especially with institutional investors or VCs
Equity finance vs debt finance
Feature | Equity finance | Debt finance |
Repayments | No | Required monthly |
Ownership impact | Dilution | None |
Investor involvement | High (VCs/angels) | Low |
Ideal for | Startups, high growth | Established businesses |
Risk to business | Lower | Higher (default risk) |
See more info on equity finance vs debt finance.
How to raise equity finance
Get investor-ready ensure you have a clear business plan, pitch deck, and financial projections. Investors want to understand the opportunity and potential return.
Decide how much equity to offer be strategic—offering too much too early could impact future funding rounds.
Identify the right type of investor whether it’s angel investors, VCs, or crowdfunding—choose investors who align with your goals.
Pitch your business present your vision, market opportunity, traction, and financial model. Be open to questions and feedback.
Negotiate terms and close the deal agree on valuation, shareholding, and any conditions. Legal due diligence follows, then funding is released.
Things to consider
While equity funding can be powerful, it’s important to weigh:
Ownership dilution: You’ll give up a portion of future profits
Loss of control: Investors may ask for voting rights or a board seat
Longer timelines: Equity rounds often involve negotiation and due diligence
Benefits of equity finance
No debt to repay
No fixed monthly repayments or interest
Strategic support
Investors can offer mentoring, connections, and credibility
Larger capital amounts
Especially useful for R&D, tech, or market expansion
Shared risk
If the business underperforms, you don’t owe repayments
Alternatives to equity finance
Business loans
Revenue-based finance
Invoice finance
Merchant cash advance
Crowdfunding loans
A hybrid of debt and community support
How does Funding Options work?
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Calculations are indicative only and intended as a guide only. The figures calculated are not a statement of the actual repayments that will be charged on any actual loan and do not constitute a loan offer.
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Representative example*
• 9.7% APR Representative based on a loan of £50,000 repayable over 24 months.
• Monthly repayment of £2,291.56. The total amount payable is £54,997.44
*Some lenders may apply fees during the application process, please note that these are set and provided by these entities.
Annual Percentage Rates
Rates from 8.2% APR
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1 month to 30 years terms
Learn more about equity finance
What is the difference between equity and debt finance?
Equity finance doesn’t require repayments but involves giving up ownership. Debt finance lets you retain control but comes with repayment obligations.
How do equity investors make money?
Investors profit from dividends or a return on their shares when the business is sold or goes public.
Equity vs debt financing
Equity finance is an investment in your business. You sell a percentage of your business for a certain amount of money. Debt finance, on the other hand, is when you receive money or assets in exchange for repaying the funds, usually on an instalment basis, but not always, with the addition of interest.
An example of debt financing is a business loan, whereas an example of equity financing is private equity funding. Debt financing doesn’t require sacrificing ownership in your business, but it does require meeting your repayment obligations, which can put a strain on you if your business starts to struggle. However, this can be a positive if your business grows, as you won’t need to pay a percentage of your increased profits. Learn more about equity vs debt financing.
Do I lose control of my business?
Not necessarily — but some investors may seek a say in business decisions. It depends on the terms agreed.
Can I combine equity and debt?
Yes — some businesses use a hybrid model like mezzanine finance to balance ownership and capital structure.
Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.
It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.
Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.
Vivek Seda
Business Finance Manager
Vivek is the Asset Based Lending Manager at Funding Options by Tide. Vivek has been in the industry for over 10 years, working for both lenders and brokers. His product specialisms cover Asset Finance, Invoice Finance, Property Finance and structured transactions.