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Growth finance – How to pave the road to strategic company growth

19-04-2022|Anthony Gougeon

After raising funds to start or buy your own business, the remaining cash earmarked as working capital may seem sufficient to take your business from A to B. Along the way, you’ll celebrate the first chapter of milestones that you set out to achieve; establish an end-to-end supply chain, hit your first 100 sales, and maybe even recruit your first staff member.

The point will soon arrive when you begin the next chapter to reveal a new set of ambitious milestones; expand operations nationwide, hit 1000 sales and recruit a team of specialists with valuable sector experience. Consumer demand may be on an upward trajectory, and you may have substantial people power to increase order capacity, however, if working capital is slowly diminishing, how will you maintain company growth?

Growth finance in the form of a business loan or commercial lending can help business owners bid farewell to intermittent shortfalls in working capital. A cash injection can help fund the purchase of additional resources, equipment, and materials, so businesses can go on to accept more orders and multiply profits.

Jon Munnery of UK Liquidators shares his thoughts on the different applications of growth finance and why businesses must travel down this path strategically to maintain a viable business and bolster financial health.

Why growth finance may be the solution for fledging businesses?

Growth finance is another name for commercial finance that can help a business thrive in optimum trading conditions.

If your business bears the fruits of your labour with little resistance, it may be well-positioned to demonstrate long-term growth with additional financial backing. Growth finance is used to fund the growth journey of a business, from the purchase of an extra machine to speed up production, to the upgrade of a vehicle with a higher efficiency rating to drive down overheads.

There are different forms of commercial finance tailored to various uses, such as:

Invoice finance – to fill the gap between invoice payments

Asset finance – to buy assets, such as vehicles, equipment, and machinery

Bridging finance – to bridge the gap between loans

Construction finance – to release cash from construction contracts early

Trade finance – to borrow funds to pay suppliers while you wait to get paid

Structured finance – to borrow funds and use multiple assets as security

To pave the road to strategic growth and manage the debt burden on your business, here are our top pointers.

Avoid the overburden of debt

A staggering number of businesses increased their debt levels during the coronavirus pandemic. You must consider this when applying for additional finance as borrowing must remain affordable and manageable.

By 31 May 2021, the value of loan facilities approved under the Bounce Back Loan Scheme (BBLS) amounted to £47 billion and £26 billion approved under the Coronavirus Business Interruption Loan Scheme (CBILS). Although this lifeline helped thousands of UK businesses survive and continue trading throughout the pandemic, it will affect company cash flow.

If your business will topple under the weight of additional borrowing or can’t pay company debts, restructure company finances to improve cash flow and keep creditor pressure at bay.  Business income is yet to return to pre-Covid-19 levels, so businesses must tread carefully and responsibly when borrowing.

Maintain a positive debt-to-income ratio

A debt-to-income ratio measures company debt against income. If it’s positive, monthly income will overtake monthly debt repayments, and if it’s negative, your debt repayments will outweigh income.

Growth finance should help fuel a positive debt-to-income ratio and sow the seeds to a profitable future, rather than weigh down as an unnecessary financial burden on the business. As such, both short-term and long-term affordability should be considered.

Review existing facility

The debt facility that you first began with may have been a perfect fit for that stage in your trading life, however, as company overheads increase in tandem with the growth of the business, review your commercial finance facility occasionally to check that it remains suitable.

Is it still good value for money? Should you reduce or increase payments? Are the terms competitive? Does it provide enough flexibility?

The growth journey for each business can vary, from a small step to a vast leap and a single cash injection to a rolling credit facility. If growth finance sounds like the ideal next step for your business, explore your options and find a tailored facility to suit your exact needs.

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