This site uses third party services that need your consent.
Both financing routes provide access to significant capital but differ fundamentally in structure, cost, and long-term implications for business owners. This guide explores the role each plays, what makes them suitable in different scenarios, and how they can be effectively used to support your business development plans.
As businesses scale, launch new ventures, or pursue acquisitions, securing the right type of funding becomes critical. While traditional bank loans remain a go-to for many, alternative forms of finance, particularly equity finance and mezzanine loans, offer flexible, growth-oriented solutions that support a wide range of strategic objectives.
Equity finance involves raising capital by selling shares in your business to investors. In return, these investors gain ownership in the company, alongside a share of future profits and, depending on the structure, decision-making influence through voting rights.
Unlike debt-based funding, equity finance doesn’t require monthly repayments or interest charges. Instead, investors see their returns through dividends and eventual capital gains if the business grows in value.
Equity finance comes in several forms. Startups and early-stage companies might seek backing from angel investors or venture capital firms. More established businesses may work with private equity or growth capital funds looking for scalable, cash-generative opportunities.
For many companies, equity finance is more than just capital. Investors often bring experience, industry connections, and strategic insight that can significantly enhance business operations and long-term planning.
However, it comes at a cost, ownership dilution. Business owners must be prepared to give up a share of control and future earnings. Equity agreements also require clear alignment of vision between founders and investors to avoid future conflict.
Equity finance is typically most appropriate when:
Your business is in a high-growth phase that requires significant capital.
You are willing to share ownership in exchange for funding and expertise.
The business cannot afford regular loan repayments or is pre-revenue.
Mezzanine finance is a hybrid funding model that sits between senior debt and equity. It generally takes the form of a subordinated loan that carries a higher interest rate than traditional debt but is more flexible in structure. In some cases, mezzanine debt may include provisions for lenders to convert part of their loan into equity, especially if the business performs well or if repayments are delayed.
This type of financing is particularly well-suited to established companies that are looking to expand, acquire new businesses, or complete large projects, but want to retain control and minimise dilution of ownership.
Mezzanine finance is usually unsecured and subordinate to senior debt, which means it carries more risk for the lender and thus demands a higher return. Repayment terms may include interest-only periods, profit-sharing, or equity conversion clauses, depending on the borrower’s needs and the lender’s risk appetite.
It’s often used in situations where a business has already leveraged traditional debt facilities and needs additional funding to complete a capital-intensive project. Because of its flexibility, it can fill the gap between what banks are willing to lend and the total capital required for growth.
Mezzanine finance is typically suitable when:
Your business is generating stable cash flow and has a strong track record.
You require additional capital beyond what senior lenders are willing to offer.
You want to avoid giving up significant equity while funding expansion.
While both options provide funding beyond standard bank debt, they differ in how they impact ownership, risk, and financial obligations.
Ownership and Control:
Equity finance requires giving up a share of your business, sometimes including decision-making power. Mezzanine loans, on the other hand, allow you to retain full ownership unless conversion rights are triggered.
Repayment Requirements:
Equity carries no repayment obligation, which makes it attractive for businesses not yet generating profit. Mezzanine loans, being debt instruments, do require repayment, though often with more flexible structures than senior debt.
Cost of Capital:
From a financial standpoint, equity finance may appear “cheaper” in the short term because it doesn't require interest payments. However, long-term costs can be higher if you give up a significant portion of future profits. Mezzanine loans carry higher interest rates than traditional loans, but they often involve less dilution and may be repaid earlier to reduce cost.
Investor Involvement:
Equity investors are typically involved in governance, advising on strategic decisions and sometimes taking board seats. Mezzanine lenders usually take a more hands-off role unless there is a default or underperformance.
Selecting the appropriate funding structure depends on your business’s life stage, financial health, and long-term objectives.
If your business is in its early stages or requires significant upfront capital to scale, equity finance may be the best route, particularly if you value mentorship and strategic support alongside funding.
If your company is already profitable and looking to expand without diluting ownership, mezzanine finance offers a useful middle ground between traditional debt and full equity funding.
In some cases, a blended approach may work best. Businesses often combine senior debt, mezzanine capital, and equity investment to structure deals that maximise flexibility and balance cost against control.
At P10 Financial, we support businesses in navigating complex funding decisions by offering expert advice and access to a broad network of equity investors, debt providers, and hybrid capital specialists.
We work with growth-focused SMEs, family businesses, and mid-market firms across the UK, structuring tailored financing solutions to support:
Growth capital needs
Acquisitions or MBOs
Property or infrastructure investment
Strategic refinancing
Whether you’re exploring your first equity raise, seeking additional growth capital, or preparing for a major transaction, our team is here to help you assess your options and secure the right funding mix.
Let us help you explore how equity finance or mezzanine loans can support your business’s next stage of growth.
