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How to finance business growth

There are countless possibilities for business growth, and using business finance can help your plans have more impact. Below we give a helping hand to businesses that are looking to increase turnover, purchase new equipment, expand into new premises, or take advantage of upcoming growth opportunities.

Using finance to increase annual revenue

One measure of growth is your business turnover. A growing turnover implies many things about your business. It's a clear indication that your market position is improving, that you’re gaining more contracts and purchase orders, and most of all, that your business service or product is gaining further traction and improving. Finance can be used to increase your turnover and lead to these characteristics of a thriving business.

As a trading business, you'll already understand the importance of working capital to pay for your operating costs — bills, wages and everything else in between. Did you know that working capital finance can give you the opportunity to tender for larger contracts, purchase larger quantities of stock, and generally get larger as a business? The three options below will boost your working capital reserves, which can be used to boost your growth.

Flexible invoice finance

Giving your customers credit terms to pay you back is sensible for many reasons — in fact, you most likely already do it. It allows you to build great relationships across the supply chain and your business can, in turn, handle large payments better over time.

Invoice finance is simply the process of freeing up cash from your invoices to customers. It uses the value of the service provided by your business – tied up in the invoice – to quickly release cash into your account. Rather than waiting for 30 to 60 days for your invoice to be paid, you simply sell it to the invoice financier who will advance up to 90% of the value immediately. It keeps cash running through the business, so you can pay for your own costs and bills, and make growth purchasing decisions.

Invoice finance can be thought of as simply releasing the current value of the business regularly — it uses existing assets, so what the business currently has. However, it means your business can afford more, and therefore do more. Some businesses wonder how it will affect their margins, but if you’re taking on larger contracts, you can view the option as a long-term strategy for growth and it’s more likely to stack up.

Significantly, invoice finance products grow with your business. They are not simply static business loans. It increases as your business increases, which is why many fast-growing and large companies have it in their roster.

Purchase order finance for stock purchases

This is more for businesses that buy lots of stock and sell to the trade. Using this type of finance can aid your growth by saving on costs and boosting your working capital reserves.

There are many lenders who will view your purchase orders as tangible assets, depending on their focus area and your business (that’s where our job to match you to the right lender as quickly as possible comes in). They will provide stock finance for you to purchase larger quantities of stock, provided they can track the end-to-end transaction — who you buy from, and who you sell to.

For other businesses, general supply chain finance can provide an upsurge in cashflow and working capital simply by using the credit rating of other businesses in your chain. The best example is if you supply large corporations or blue chip businesses, as you can use their credit rating to get finance at competitive rates.

Business growth loans

When new opportunities arise, you may need upfront deposits or capital so you can pounce on them. Whether it’s tendering for huge contracts that could take your business to the next level, or building the technology that you need for better performance, you may need to acquire funds to pay for it.

Growth term loans can be accessed quickly and with minimal fuss. They're a simple and credible option that businesses can use at different stages in their life for specific purposes. That’s the key point here — if you know what you need to do in the short run (and how finance can help you reach that goal), a short-term growth loan based on your turnover and revenue could be the right solution.

Options for purchases of assets and property

If your growth plans include acquiring new equipment or commercial property, there are again different ways to finance these.

Asset Finance

Machinery and equipment are integral to many businesses, but finding the cashflow to buy them can be difficult. Asset finance options allow you to obtain the equipment you need for growth using a variety of methods, such as leasing, hire purchase or sale and leaseback.

In the catering sector – where asset finance is crucial – having equipment that is compliant with regulations (energy efficiency for example) is sometimes a necessity. The trick to maintain your growth, when upgrading or purchasing new catering equipment, is to make the equipment pay for itself using finance options, so by the end of the finance agreement the business has realised its growth and you can better afford repayments.

Commercial property: purchase and remortgage

Many businesses move into new offices as their teams grow. Some will purchase warehouses as their stock level rises, and others will simply want a better deal on where they currently operate, to either reduce costs in the long run or remove the constant demand for quarterly rent from the landlord.

A great option here is to refinance existing equipment and machinery to raise deposits for such purchases. You can borrow from 60-90% of the asset’s value depending on the condition of the equipment and it comes with great, flexible terms. You’d be surprised by how many tangible assets in your business can be refinanced for commercial purposes.

In the same way, using your current property to release equity – i.e. remortgage it – can help to expand your property portfolio or make a downpayment on new commercial premises.

Equity investment

Many business owners face the difficult choice of whether or not to give up equity in their business. Outside investment can be a great way to facilitate growth, but it also means you’re selling part of your company — and a share of future profits.

Equally, many business owners understand that to realise the dream for their business, external investment is necessary. They may not have the capacity to make repayments on any debt finance issued, so offering an equity share provides funding but allows them to maintain enough control.

One of the more exciting forms of investment is crowdfunding. You receive small amounts of investment from a crowd of individuals, usually via online platforms where you list your project/business, and receive offers from the ‘crowd’ until you reach your target amount.

Craft beer company Brewdog is a great example of successful crowdfunding. It went from a decent-sized brewery to a huge global brand in a short space of time. Formed in Aberdeen in 2007, Brewdog went from 67 employees and four bars in 2011, to 224 employees and 13 Brewdog Bars in 2013. How?

In 2009, it launched its Equity for Punks scheme so the public could invest small amounts and own shares in Brewdog. This crowdfunding model raised up to £1m in just 24 hours, through thousands of minority shareholders all over the world.

While crowdfunding isn’t suitable for all businesses – and you can crowdfund for both equity and debt – it's a great alternative finance option you may want to consider.

Growth through acquisition

The final two options in this guide to growing your business examine what finance is available for mergers, acquisitions and takeovers. The most common solution is to refinance your existing assets to release the cash tied up, but there are other options like secured term loans.

Secured commercial loans

Secured commercial loans allow you to access business loans over extended periods based on tangible assets that you own, such as properties, buy-to-let portfolios, and even equity in other assets. They are often used for management buy-outs, restructuring struggling businesses, or mergers and acquisitions.

Alternative finance: pension-led funding

Many business owners don't realise that their pension could be a valuable asset that can be used for business purposes. Pension-led funding can be complex, but we'll guide you through the whole process — and it might be the right solution for your company.

Discover your funding options

The various solutions in this guide should give you a better idea of what’s available in the marketplace today. Alternative finance is rapidly changing, and there's a wealth of options available today that wouldn't have been accessible ten or even five years ago. That means it's easier than ever before to realise your growth plans.

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