Interestingly, we’ve recently seen considerable changes in attitude when it comes to commercial funding in the UK, with businesses increasingly inclined to eschew external financing in favour of more organic growth.
In fact, just 36% of smaller businesses now use external finance in the UK, compared to 44% in 2012. Not only this, but more than seven in 10 firms now say that they would rather forgo growth than accumulate debt, with this representing a marked change and one that may be indicative of the current economic climate.
However, this may prove to be a false economy, as there are several ways in which loans and borrowing can boost your business. For example:
Boost Your Business Cash Flow
Cash flow is king for most businesses, especially small and medium-sized firms that don’t boast significant resources.
In this respect, short-term loans can help companies to cope with temporary cash flow issues, so long as entrepreneurs don’t borrow more than they can afford to repay within the relevant time-frame.
For example; some companies can struggle to cope with 90, 60 and even 30-day invoice terms, especially in a scenario where they’re already recording lower revenues. However, invoice financing enables them to leverage their accounts receivable to secure an immediate loan to cover the value, before repaying this just as soon as the client has settled their bill.
So, be sure to keep your options open when managing your cash flow, and don’t be afraid to consider short-term lending options in the right circumstances.
Driving Organic and Manageable Growth
We’ve already touched on how the idea of eschewing growth may ultimately be counterintuitive, particularly as not every business or market is affected equally during times of recession.
Not only this, but there are also loan products that enable you to borrow money based on future revenue projections, creating a scenario where you can fund your short-term growth in a responsible and manageable way.
Often referred to as a business cash advance (BCA), this generally allows you to borrow up to 125% of your monthly card volumes (from £3,000 to £150,000 or above). So, you can tailor the amount borrowed according to your outlook and earnings, striking the ideal balance between ambition and risk in the process.
Once again, accurate business and financial planning is key to sustainable growth, so try to deal in accurate numbers and projections before borrowing any sum of money.
Improving the Terms of an Existing Loan
In many instances, you may have already taken out a business loan, creating a scenario where your firm is carrying a fixed level of debt.
However, the chances are that your first business loan may well have been secured against relatively prohibitive terms, and in this respect, which is why so many companies end up borrowing less than they need when starting up.
To counter this, you may want to consider taking out a minimal loan to initially get your business off the ground, before securing a larger amount on more favourable terms as you look to repay the existing debt and invest more into further growth.
This way, you’ll minimise the sum that you have to pay back initially, while accessing better value finance once you’ve developed superior credit terms and a viable source of income.
