This week we’re examining one of the most commonplace questions facing UK firms in today’s turbulent economic climate: why use business finance? From maintaining working capital to buying new equipment, from outsourcing administration tasks to taking advantage of your asset portfolio, the incentives to explore your funding options know no bounds.
Below are our top five reasons why UK companies, no matter their size or situation, should consider seeking financial support in the coming months.
Why use business finance?
- Sustain your working capital
Many businesses with years of experience under their belt can easily generate the funds needed to pay their staff, drivers, suppliers and other daily costs while simultaneously placing bids for further works or investing in new technologies. For those newly-formed businesses gradually finding their feet, however, managing that juggling act won’t always come quite so naturally, particularly if they’re still bidding for the initial projects needed to raise such working capital.
That’s where business finance comes in – your firm could for example utilise an invoice finance arrangement to receive a high percentage of its invoices’ value long in advance of the 30-120 days often allowed for customer payments, or alternatively generate the necessary working capital via a short-term business loan instead. Where previously you might’ve fretted over your company’s ability to submit competitive bids while upholding supplier payments in these all-important early days of trading, now you can put these worries well and truly behind you.
- Invest in new business assets and projects
Once you’re confident that your working capital is healthy, the next step is for the business to grow and expand its operations through the acquisition of further assets or to ensure fulfilment of increased orders. These can range from Enterprise Resource Planning (ERP) software to physical resources like commercial machinery or more general inventory.
If your business relies heavily on inventory, trade finance – a form of working capital finance based on confirmed purchase orders which can work in tandem with invoice finance – could be used to secure a funding line to cover supplier costs. Asset finance could also be used to help you gain access to the assets you need without having to pay all of the costs upfront via hire purchase or leasing options.
These two products are but the tip of the iceberg, with plenty of other financial solutions available for any businesses struggling to expand their asset portfolio.
- Take advantage of your current asset portfolio
Asset-based challenges don’t apply to every business, of course – firms operating in sectors such as retail or manufacturing might find commercial property, equipment and vehicles relatively simple to secure. That said, it’s important for any firms who’ve amassed a strong asset portfolio over the years to recognise that far from limiting their eligibility for business finance, this element of their organisation could in fact open doors to invaluable new investment opportunities.
Were you to explore a secured business loan arrangement, for instance, the financier would provide this facility on the basis that one or several of your business’ assets would serve as ‘collateral’ if its monthly repayments ever fell through. Such arrangements as these remain hugely popular in the UK, with UK Finance reporting that high street banks recorded over £265bn worth of outstanding business loans and overdrafts in December 2017.
As for those businesses with fewer assets to rely on, another option is an unsecured business loan – here you’ll access short- or long-term funding in much the same way, but with a personal guarantee as your security rather than any assets. You can visit our compare business loans post for more information.
- Various Repayment Structures whatever your needs
While some businesses may welcome the more traditionally used financing agreements such as unsecured business loans with fixed repayment options for the agreed period of time, others may require more adaptable arrangements.
If you operate a B2C business model and your business demand is strongly affected by seasonal times, a merchant cash advance could be a solution. This type of arrangement will consider repayment based on a percentage of your future credit and debit card sales. Therefore if you have a quiet month, you repay back less.
- Minimise administration hassle, maximise efficiency
Speaking of invoice finance’s spot factoring, another supplementary benefit involved with many factoring arrangements is the capacity for financiers to manage credit collection on your behalf. This option should come as music to the ears of those businesses who’ve yet to fully develop their own credit management systems, since it allows them to delegate a previously time-consuming administrational task to a third party and focus on the objectives that matter, such as project bids and other expansion-focused measures.
Find out more
With any luck we’ll have gone some way towards resolving the question of “why use business finance?” for you in this article, but feel free to also consult our 4 Reasons Why Successful Businesses Borrow Money guide today for additional insight into current UK commercial financing trends.