By Clive Lennox, Head of Capital Markets, Teybridge Capital Europe
The main types of business funding include equity finance, business loans, overdrafts and revolving credit, invoice finance, purchase order finance, inventory finance, venture debt and structured finance. The right option depends on what the capital is being used for, the stage of the business, its cash flow and whether the owners are willing to dilute their equity.
As you can see, there is no shortage of funding options available to growing businesses. The challenge is not finding capital. It is understanding which type of capital is right for which purpose, and at which stage of your journey.
Using the wrong funding at the wrong time is one of the most common and most costly mistakes a growing business can make. Equity used to solve a cash flow problem. A term loan taken out when invoice finance would have been cheaper and more flexible. A fixed facility that cannot grow as quickly as the business needs it to.
This guide walks through the main types of business funding available to SMEs and growth-stage companies, explains how each one works, and helps you understand when each is most relevant.
Types of Business Funding at a Glance
| Funding Type | What It Is | Best Suited To |
| Angel investment | Early-stage equity from individuals | Pre-revenue or seed-stage businesses |
| Venture capital | Institutional equity investment | Revenue-generating, high-growth companies |
| Overdraft / revolving credit | Flexible short-term borrowing | Established businesses with predictable cash flow |
| Invoice finance | Cash against unpaid invoices | Businesses with strong debtors on payment terms |
| PO finance | Funding to fulfil purchase orders | Product businesses and distributors |
| Inventory / stock finance | Funding secured against stock | Retailers, wholesalers, manufacturers |
| Debt finance / Venture debt | Term loans for scaled businesses | Equity-backed companies with strong revenue |
| Structured finance | Combination of multiple products | More mature corporate businesses |
Angel Investment
What Is Angel Investment?
Angel investment is typically the first external capital a business accesses after the founders’ own money. Angels are high-net-worth individuals who invest at an early stage, often before there is significant revenue or trading history to point to. They are backing the idea, the team, and the potential.
In exchange for their investment, angels receive equity, a percentage stake in the business. The amount of equity involved varies, but early-stage angel rounds typically involve a meaningful minority stake in exchange for the capital and guidance provided.
How Angel Investment Works
An angel investor provides capital directly to the business in return for shares. The process is usually less formal than institutional fundraising, and angels often bring valuable networks and experience alongside the money. Many are founders or operators themselves who have been through a similar journey.
When to Use Angel Investment
Angel investment is most relevant in the very early stages of a business, when the concept is being formed, the team is being built, and the initial product or service is being developed. It is rarely the right choice for an established business with revenue, where more efficient forms of capital are typically available.
Example: A two-person technology team has built a prototype and identified clear market demand, but needs £150,000 to hire their first developer and begin customer acquisition. An angel investor who understands the sector backs the team with capital and introductions to their network.
Venture Capital
What Is Venture Capital?
Venture capital (VC) is institutional equity investment into early stage, high-growth businesses. VC funds raise money from institutional investors (pension funds, university endowments, family offices) and deploy it into companies they believe can generate outsized returns.
In exchange for their investment, VC funds receive an equity stake, typically somewhere between 10 and 25 percent depending on the round size, valuation, and stage.
How Venture Capital Works
A business seeking VC investment goes through a process of pitching, due diligence, and negotiation before a term sheet is issued and a round closes. The best VC investors bring considerably more than capital: they bring strategic guidance, portfolio connections, follow-on funding, and the kind of credibility that opens doors with future investors, customers, and talent.
When to Use Venture Capital
Venture capital becomes accessible once a business has started generating real revenue and can demonstrate that its model works. It is the right tool when capital is needed for strategic purposes, building the product, entering new markets, making senior hires, rather than for managing working capital or operational cash flow.
Important: equity is finite and dilutive. Every round reduces the founders’ ownership. That dilution is entirely justified when capital is being deployed into genuine growth. It is far less justified when equity is being used to bridge a gap between raising an invoice and waiting for a customer to pay, a problem that invoice finance addresses far more efficiently.
Example: A logistics technology company has proven its model with early customers and achieved £4M in annual revenue. A leading venture fund invests £5M in exchange for a 20 percent stake in the business, providing the capital to expand the team, build the technology platform, and win larger contracts.
Overdraft and Revolving Credit Facilities
What are Overdraft and Revolving Credit Facilities
An overdraft or revolving credit facility (RCF) is a flexible borrowing arrangement, typically provided by a business’s main bank, that allows the company to draw down and repay funds up to an agreed limit.
How an Overdraft and Revolving Credit Facilities Work
The business has access to a credit limit and can draw funds when needed, repaying them as cash comes in. Interest is charged only on the amount drawn. Unlike a term loan, there is no fixed repayment schedule, the facility revolves as the business uses and repays it.
When to Use an Overdraft and Revolving Credit Facilities
Overdrafts and revolving credit facilities work well for established businesses with predictable, seasonal, or irregular cash flows that need a buffer for short-term liquidity needs. They tend to be limited in size for younger businesses and are often secured against assets or personal guarantees.
For fast-growing companies whose working capital requirements outpace what a bank is comfortable approving, an overdraft alone is rarely sufficient, and alternative working capital solutions are likely to be more effective.
Example: A professional services firm has reliable monthly revenue but faces timing gaps between project delivery and client payment. A revolving credit facility gives them a buffer to manage payroll and supplier costs while awaiting payment.
Invoice Finance
What Is Invoice Finance?
Invoice finance, also called receivables finance or invoice discounting, allows a business to access the cash tied up in unpaid invoices immediately, rather than waiting for customers to pay on their standard terms.
How Invoice Finance Works
The business raises invoices against its customers in the normal course of business. Those invoices are submitted to a specialist lender such as Teybridge Capital Europe, which advances up to 90% of the invoice value, within days. When the customer pays, the advance is repaid and the cycle resets.
There are different structures within invoice finance:
Invoice factoring: The lender manages credit control and collects payment from your customers directly. Your customers are notified that payments should be made to the funder. This suits businesses that want to outsource collections administration.
Invoice discounting: You retain control of your sales ledger and continue to manage customer relationships directly. The facility can be confidential, with customers unaware that it exists. This suits businesses with an established internal finance function.
Selective invoice finance: Rather than funding the entire sales ledger, the business chooses specific invoices to fund on a case-by-case basis. This gives maximum flexibility and is particularly well suited to businesses with seasonal demand, large one-off contracts, or concentration in a small number of customers. Teybridge Capital Europe specialises in selective invoice finance.
For more information on selecting the right type of Invoice Finance, read our Invoice Finance Guide.
When to Use Invoice Finance
Invoice finance is most relevant for businesses that raise invoices against creditworthy customers and those customers pay on terms of 30 days or more. The longer the payment terms, the more valuable the facility becomes.
It is particularly powerful for growing businesses because the facility scales naturally with revenue. As you win more contracts and raise more invoices, your access to working capital increases automatically, unlike a fixed credit line, which can become a constraint on growth.
Critically, invoice finance is non-dilutive. No equity changes hands. Founders do not give away any additional ownership of the business to access the capital.
Example: Our Client, a fast-growing logistics company invoices major global e-commerce retailers on 60-day terms. With operational costs payable weekly, the gap between raising an invoice and receiving payment creates a significant and growing working capital requirement. An invoice finance facility bridges that gap, allowing the business to grow without burning through equity. Read the full case study here.
Purchase Order Finance
What Is Purchase Order Finance?
Purchase order (PO) finance is designed for businesses that need funding to fulfil a large customer order before they can invoice for it. It bridges the gap between receiving a purchase order and being paid for it.
How Purchase Order Finance Works
When a business receives a significant purchase order, PO finance provides the capital needed to pay the supplier or manufacturer so that the order can be fulfilled. Once the goods are delivered and an invoice is raised, the PO finance is typically replaced by invoice finance, with the invoice finance repaying the PO facility and releasing the remaining margin to the business.
When to Use Purchase Order Finance
PO finance is particularly relevant for product businesses, distributors, and importers that hold stock or work with manufacturers. If the order size is large relative to available working capital, or if the business cannot afford to pay its supplier before the customer pays, PO finance makes it possible to take on contracts that would otherwise be out of reach.
Example: A wholesale distributor receives a £500,000 purchase order from a major retailer but needs to pay their manufacturer upfront before goods can be shipped. PO finance covers the supplier cost, the goods are delivered, an invoice is raised, and the PO facility is repaid when the invoice is funded.
Inventory and Stock Finance
What Is Inventory and Stock Finance?
Inventory finance (also called stock finance) allows a business to use its physical inventory as collateral to access working capital. Rather than tying up cash in stock, the business can borrow against it.
How Inventory and Stock Finance Works
A lender advances a percentage of the value of the business’s inventory, secured against the stock itself. As stock is sold and invoices are raised, the inventory finance can transition into invoice finance, creating a seamless working capital cycle from purchasing through to payment.
When to Use Inventory and Stock Finance
Inventory finance is most relevant for retailers, wholesalers, manufacturers, and importers that hold significant amounts of physical stock. It is particularly valuable during periods of high seasonal demand, when a business needs to buy large quantities of stock ahead of peak trading, or when making a large batch purchase to take advantage of supplier terms.
Example: A food and beverage importer needs to purchase six months of stock from its overseas supplier to secure favourable pricing and availability. Inventory finance provides the capital to do so without depleting working capital reserves, with the facility repaid as stock is sold.
Debt Finance and Venture Debt
What Is Debt Finance and Venture Debt?
Debt finance covers a range of term loan products offered by banks and specialist debt funds. Venture debt is a specific form of debt finance aimed at equity-backed, high-growth companies that have raised institutional investment and can demonstrate strong revenue performance.
How Debt Finance and Venture Debt Works
A lender provides a term loan or structured facility, typically secured against the company’s assets. The business repays the capital over an agreed period, along with interest. Unlike equity, debt finance does not dilute the founders’ ownership, the lender is repaid through cash flows rather than a share of the business.
Venture debt is usually offered alongside/soon after an equity round, not as a substitute for one. It extends the runway a business has following a fundraise, providing additional capital without further dilution.
When to Use Debt Finance and Venture Debt
Venture debt become available as a business matures and builds the financial profile that attracts senior institutional lenders. A business typically needs to have raised meaningful equity, demonstrated consistent revenue growth, and be able to show strong unit economics before venture debt is available.
It is the right tool for specific capital needs, a technology investment, an acquisition, or a market expansion, rather than for ongoing working capital management.
Example: A software company has raised a £8m Series A and is generating £5M in annual recurring revenue. A venture debt provider extends a £3M facility soon after the equity round closes, giving the business additional runway to reach the next milestone without issuing more shares.
Structured Finance
What Is Structured Finance?
Structured finance combines multiple funding products into a single, coordinated facility that addresses several different needs within a business simultaneously. Rather than using one product to do everything, a structured solution uses each product for what it does best.
How Structured Finance Works
A specialist provider works with the business to understand its full working capital cycle, from purchasing stock through to collecting payment, and designs a facility that addresses each stage. This might combine invoice finance with PO finance and inventory finance, or sit alongside a senior debt facility from a bank.
At Teybridge Capital Europe, we work with businesses to build structured solutions that can scale alongside them, and where necessary, that can sit comfortably within a capital structure that includes other lenders.
When to Use Structured Finance
Structured finance is most relevant for businesses with complex or multi-stage working capital needs, international traders, fast-scaling companies managing multiple product lines, or businesses that have outgrown a single-product facility. It is also the right approach when a business needs its working capital solution to work alongside, rather than conflict with, a senior lender.
Example: A fast-growing logistics technology company uses invoice finance for its receivables, works with a senior bank lender for venture debt, and relies on Teybridge Capital Europe to structure both facilities so that they sit side by side within the same capital stack, each doing its own job, without conflict.
Ready to explore which type of funding is right for your business? Get in touch with the Teybridge Capital Europe team to discuss your options.
