Ready, steady… grow!
As a business grows, it moves through a series of lifecycle stages – typically, launch, establishment, growth, expansion and maturity – and finance can help to fund this progression. Appropriate and well-considered funding can provide security and enable a business to make decisions surrounding new equipment, staffing and the type of work it can manage. In this article, we look at the scenarios often faced during the growth period and how the right type of lending can help maintain good cashflow – the lifeblood of any company.
A ‘national mission’ for economic growth
Just like a business, a country’s economic growth is dependent on its ability to increase the production of goods and services, usually represented by its Gross Domestic Product (GDP). As part of its 2024 election manifesto, the Labour government detailed plans to drive UK economic growth and, in her first public speech as Chancellor of the Exchequer on 8 July, Rachel Reeves MP said it is the government’s ‘national mission’ to achieve this during its term of office.
According to Close Brothers Asset Finance’s Business Sentiment Index (BSI), released in August 2024, SME business confidence has risen for the first time since September 2021, with companies prioritising growth and cost management above debt repayment or consolidation. In the survey, three-quarters of UK companies said they plan to seek funding for investment in the next 12 months, particularly in transport, haulage, manufacturing and engineering.
Simultaneously, professional services firm PwC has upgraded its growth forecast for the UK’s economy, expecting GDP to expand by 1 per cent in 2024, 1.7 per cent in 2025 and 1.8 per cent in 2026. With positive sentiment among financial firms and businesses favouring investment, now is a great moment to explore your company’s plans for growth.
How to use finance to grow your business
Having launched and established a business, most companies aim to accelerate and grow sales to recoup their set-up costs and exceed their break-even point with an excess of cashflow. Depending on the sector which the business works in, scaling up operations can typically take between two to five years. As this process happens, the initial level of business risk falls and, as profits grow, the company has a demonstrable ability to repay debt.
With proven value and demand for a company’s services or products, at this point of trading lenders are more likely to fund a loan application which can be used to support capital investment and expansion. This might be used to invest in staff with particular areas of expertise, explore new markets – including the potential to export overseas –, to invest in machinery, technology or premises, or to create awareness through marketing activity. While each business has its own unique circumstances, finance can be used to fund plans and to bridge the gap between its growth phase and maturity.
Although it might be tempting to hold back from borrowing and to use cash reserves to fund day-to-day operations, such as purchasing stock or equipment, it is usually better to use finance to facilitate growth and expansion, maintaining reserves which can provide security during unforeseen circumstances or adverse trading conditions. More positively, a ‘war chest’ enables a company to remain agile with the ability to respond quickly to unexpected opportunities, such as purchasing discounted stock, or investing in equipment or premises.
Which types of finance should I use during the ‘growth’ stage of my business?
‘Cash is king’ is a well-worn phrase, but the truth is that for most companies cashflow is one of the most important aspects of running a business, enabling its directors to pay staff, buy stock and manage their operations. Most growing companies should be able to apply for a line of credit, allowing it to borrow up to a certain limit, as needed.
Whether a traditional bank overdraft facility or specialist lending, such as a Merchant Cash Advance, this type of finance can provide a buffer to a firm’s cashflow and support day-to-day trading. It’s also important to remember that an overdraft facility can be withdrawn by a bank at any time, and is not the same as a business loan which ordinarily has a fixed length of time and repayment agreement.
Asset finance is a type of business loan often used by companies to enable them to invest in equipment, machinery, vehicles or stock. Again, while it may be tempting to apply online or to a high street lender for asset finance, there are many specialist lenders which deal with funding applications for particular sectors or types of equipment or machinery, and an expert broker such as Complete Commercial Finance will be able to direct a funding application to the lender most likely to support a loan to maximise your chances of success.
With asset finance, a company can often borrow large amounts and spread repayments to make borrowing affordable, often with the ability to repay the loan early without any penalty if a company is able to do so. For most UK-based companies which have been trading for at least a year, a business loan application can take less than 24 hours and offer funding with regular repayments for an agreed period of time.
It is even possible to release funds from existing assets, such as equipment or machinery, with asset refinance which can help to create additional cash to be used elsewhere in a business. Often overlooked by businesses looking for additional funding, many companies are surprised to discover that something already owned by the firm can create a line of untapped credit, and a broker may be able to identify and secure finance from a specialist provider.
Finally, invoice discounting is now a highly flexible and sophisticated type of lending whereby a company can sell unpaid invoices to a lender for a cash advance which is a percentage of the invoice’s value. Again, this can help a company to manage cashflow while waiting for customers to pay, freeing up funds to pay staff, invest in stock and keep trading.
Used strategically, these types of business finance can enable a company to successfully map, shape and grow its operations. By aligning its strategic goals with a financial plan that utilises sensible and well-considered borrowing, an organisation can overcome current and future challenges to achieve growth and move into the mature stage of development.
