Funding growth - the essential financing options for reaching your potential

Unsecured business loans

If you’ve managed to get your business to the point where you just KNOW further growth is round the corner, then you’re doing something right.

You may be at the beginning of your business journey, with a successful start-up on the verge of great things. Maybe you’ve really seen your sales pick up recently and you’ve expanded your customer base. Whatever the reason behind your success, most business owners need a cash injection to help them realise their potential.

You may be wondering what kind of financing options are available to you. You may also be unsure about the type of funding that would be the most suitable to your business and your growth goals.

It’s true that there is an awful lot of choice available to business owners, and that can cause some confusion. Before you start questioning yourself too much, we’ll take a look at some of the main growth financing options, to help you make a decision that’s right for you.

But let’s start with a bit more about business growth, just so we’re clear about this phase of your business lifecycle.

How to project business growth

Before you consider applying for a loan, it’s sensible to have a solid idea of where your business is going, and how you want to get there. If you can project your business growth, you will have something to show lenders, which could increase your chances of getting a loan offer and a better rate of interest.

To create an accurate financial forecast, there are many steps. Your accountant can help you, but here are some starting points:

  • Look at your expenses

These include your fixed and variable costs - and don’t underestimate costs like marketing, legal, insurance and licensing.

  • Forecast your revenues

It’s a good idea to create a scenario for conservative performance and one ‘aggressive’ version, with best case scenario figures.

Then create revenue forecasts bearing in mind ratios like gross profit margin and your operating profit margin.

After you’ve completed the process you may have a better idea of your growth potential, which will also help you calculate how much you need to borrow, and what can afford to repay. Once you have this figure in mind, it’s time to start looking at your options.

1. An unsecured business loan

Unsecured business loans are no longer just available from banks. In fact, there are a huge range of business loan providers online, who will often have more open-minded lending criteria, offer more flexible terms and better rates than high street banks. They also offer a more personal approach to lending than a bank, which can sometimes adopt a ‘computer says no’ attitude if your business doesn’t quite tick all its boxes.

Unsecured business loans come in many different forms, but will usually offer sums of anywhere between £5,000 and £200,000 over terms of between six months and several years. They are unsecured, which means you won’t be risking your home if you miss payments, but you will still need to keep up with your repayment responsibilities to avoid serious damage to your personal and business credit files.

Interest rates vary and will depend on criteria such as your personal and business credit history and your business’ financial performance.

What does a business loan cover?

You can use an unsecured business to fund your growth in the following ways:

  • Buying new stock

  • Taking on seasonal staff

  • Improving your technology

  • Upping manufacture to meet demand

  • Purchasing new equipment

  • Paying rent on a new premises

  • Levelling off your cash flow

  • Marketing and advertising

2. Invoice financing

Invoice financing, also often known as invoice factoring, is a way to access money tied up in unpaid invoices, that you can then spend on generating growth. Late payment of invoices is a common problem for some businesses and an invoice financier will ‘buy’ these invoices off you. You will lose a percentage of their value in the process, but this form of financing does allow you to predict your income and plan growth more effectively.

3. Leasing or hire purchase

This involves borrowing money to pay for an expensive asset, such as a new piece of manufacturing machinery, or a new vehicle, and securing the loan against the value of that asset. Much like a mortgage, you don’t fully own the asset until you have either paid off the loan at the end of the term, or covered the cost in a lump sum before the end of the loan (and watch out for early repayment penalties).

If you know you need an expensive piece of equipment in order to meet your growth potential, but can’t afford it outright, leasing or hire purchase can be a great solution. Just remember that you could lose the item if you cannot afford to keep up with repayment, which could seriously jeopardise your business growth strategy.

Business line of credit

A line of credit works a little like an overdraft for our business. A lender will offer you a credit limit based on a number of criteria, such as your turnover, accounts, how long you’ve been operating, your personal credit history and your business assets, for example. You can then withdraw money up to that amount and only pay interest on the amount you have withdrawn on any particular day.

This type of business finance can be useful in funding growth if you want to take a gradual approach to borrowing. Rates may be higher than with a standard unsecured business loan, but you have a lot of control over your loan amount and interest payments.

Managing business growth

If you do decide to take on finance to help grow your business, then it’s important to manage that growth carefully. You’ll want to check you are meeting targets and have enough cash available to meet your cost and repayment obligations. Here are a few tips for managing business growth:

  • Perform a regular SWOT analysis

To properly manage business growth, you need to know your market inside out. Analysing your Strength, Weaknesses, Opportunities and Risks (SWOT) regularly will help you here. The reason why it’s important to revisit your SWOT analysis is that markets evolve and change all the time and you need to keep up.

  • Learn to delegate

If you are going to successfully manage your business growth, you need good people around you that you can trust to own the tasks they are given to do. Don’t micro-manage your employees like you might have done in your business’s infancy. Instead, learn to employ the right people and let go.

  • Don’t take your eye off your cash flow

Maintaining strong cash flow is one of the main things that will allow you to grow. This involves making sure you have oversight of your suppliers, and that your stock is well managed. You should know what is coming in and going out of your business all the time. Then you will have a real chance of building something significant to reflect your goals.

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