- When debt finance makes more sense than equity investment
- The main types of business finance available to small businesses
- How Funding Circle and Iwoca work and who each is best for
- How to choose the right type of funding for your stage
- What lenders look for and how to prepare your application
Most founders assume that funding means investors. It doesn't. The vast majority of small business growth is funded not by venture capital or angel investors, but by debt finance — business loans and credit lines that give you capital today and let you repay it over time, without giving up a single share of your company.
This guide covers the main types of debt finance available to growing small businesses, when each one makes sense, and the two lenders we recommend most to our readers.
Debt vs equity: which is right for you?
Before choosing a funding type, it helps to understand the fundamental difference between the two options.
Equity finance means selling shares in your business in exchange for investment. You receive capital upfront and don't need to repay it, but you give up part of your ownership and future profits. Investors will typically expect a significant return and will often want a say in how the business is run.
Debt finance means borrowing money and repaying it with interest over time. You retain 100% ownership of your business. The lender has no say in how you run the company — they simply want their money back with interest.
Debt finance works best when you have a clear use for the capital that will generate a return greater than the cost of the loan. Hiring a salesperson who generates €150,000 in new revenue on a €50,000 loan costs you, say, €5,000 in interest — that is a 30:1 return on the interest cost. The maths makes sense.
The main types of business finance
A term loan is the simplest form of business borrowing: you borrow a fixed amount, repay it in monthly instalments over an agreed term, and pay interest on the outstanding balance.
Term loans work well for one-off investments with a clear expected return — hiring staff, buying equipment, funding a marketing campaign, or expanding into a new market.
- Best for: planned investments with a clear ROI
- Typical amounts: €10,000 – €750,000
- Typical terms: 1 – 6 years
- Who to approach: Funding Circle, your bank
A revolving credit line gives you a pre-approved limit you can draw from and repay repeatedly, like a business overdraft. You only pay interest on what you actually use, and once you repay, that credit becomes available again.
Credit lines are ideal for managing cash flow gaps — paying suppliers before a client pays you, covering payroll during a slow month, or handling an unexpected cost without disrupting operations.
- Best for: cash flow management and short-term working capital
- Typical amounts: €1,000 – €100,000
- Typical terms: Revolving, renewed annually
- Who to approach: Iwoca, Fleximize
Asset finance lets you spread the cost of equipment, vehicles, or machinery over time rather than paying upfront. The asset itself typically serves as security for the loan, which means lower interest rates and more accessible approval criteria.
- Best for: product businesses needing equipment, vehicles, or technology
- Typical amounts: €5,000 – €500,000+
- Typical terms: 1 – 7 years
Funding Circle — best for term loans
Funding Circle is Europe's leading online business lender, having lent over €12 billion to more than 120,000 businesses since 2010. It offers fixed-rate business loans with a fast digital application process and a decision in as little as 24 hours.
- Loan amounts: €10,000 to €750,000
- Rates from: 6.9% APR
- No early repayment fees — pay it back faster if you want to
- Minimum trading history: 2 years
- Decision time: as little as 24 hours
Established businesses with 2+ years of trading history that need a lump sum for a specific growth investment — hiring, equipment, marketing, or expansion.
Iwoca — best for flexible credit
Iwoca specialises in flexible revolving credit lines for small businesses. Its Flexi-Loan product lets you draw down what you need, repay it on your schedule, and draw again — with no penalty for early repayment.
- Credit lines up to: €100,000
- Minimum trading history: 6 months
- Decision time: within hours
- Funding time: within one business day
- Available to: sole traders, partnerships, and limited companies
Small businesses that need flexible, short-term working capital rather than a fixed lump sum. Particularly good for businesses with seasonal cash flow or that regularly need to bridge gaps between invoicing and payment.
How to prepare a strong funding application
Whether you're applying to Funding Circle, Iwoca, or your bank, lenders are looking for the same core things. Being prepared on these points dramatically increases your chances of approval and getting the best rate.
- 2 years of filed accounts — or management accounts if you're newer
- 3–6 months of business bank statements — showing healthy cash flow
- A clear purpose for the loan — what will you use it for and how will it generate a return?
- Clean credit history — both business and personal credit scores matter for most SME lenders
- Existing debt obligations — lenders want to know your total debt picture
Only borrow for investments that will generate a return greater than the cost of the loan. Borrowing to cover operating losses is a red flag — it delays the underlying problem rather than solving it. If your business is loss-making, fix the economics before adding debt.
The bottom line
Debt finance is one of the most powerful and underused tools available to growing small businesses. A well-structured loan or credit line lets you accelerate growth, hire sooner, and seize opportunities — without diluting your ownership or bringing in investors who may not share your vision.
For a planned investment with a clear ROI, start with Funding Circle. For flexible working capital and short-term needs, start with Iwoca.