The UK small business sector is booming; every day, more people set up for themselves. However, after the initial excitement of winning new customers, it can be tough for small businesses to mature into long-term sustainability. The missing factor? Time and again, it’s external financial support.
There are various reasons why businesses don’t look for funding from outside, including fear of debt, a reluctance to give up equity, and a lack of market understanding. These are often misplaced concerns, and the positives of external finance can far outweigh the negatives.
Here are a few reasons external finance could be key to your business plans.
Take the next step
The key word: growth. For small businesses started as passion projects in bedrooms and garages, this is fundamental. External finance can support the next step in a way that your sales rarely can. A funding injection could help you secure the space to work more effectively, lease the equipment to improve your offering, or hire another pair of hands to ease the workload.
Businesses in this early start-up stage are often more willing to accept support. But once they advance to the stage where they have a clear concept and route to profitability, they can be more reluctant. But these businesses are the ones who can benefit most.
External funding could help broaden the offering, grow the workforce or expand overseas.
Nothing to fear
Many small business owners avoid taking finance because they’re worried about debt. They may be reluctant to take on anything beyond their control – there is a reassurance to being able to shut up shop if they decide.
The important thing to remember is that as a limited company director, you’ll have limited liability – so the debt belongs to the business rather than you personally. Unless, of course, the lender asks you for a personal guarantee.
They often worry they won’t be accepted for finance either, or that as a small business they will be asked to pay inflated rates. Providers are much more willing to support small businesses than historically – especially with the wider range of options now available beyond the big high-street banks.
An outside perspective
Presenting your business to the proposed funding provider can help you get an outside perspective on what you’re doing. And if you secure the funding, you might even benefit from some ongoing guidance.
The level of input will vary based on the type of funding, but you should at least get some feedback on your business plan. You’ll be dealing with someone who has considerable business experience – they’ll know warning signs and how to spot an opportunity that could help you advance. This could help you plot the most productive route forward for your business.
Preserve internal resources
Diverting your revenues towards growth can potentially lead to cash flow pressure. If you use external financing, cash flow can remain relatively untouched.
To put it another way, consider using the business’ own funds for day-to-day functions – and reserve external finance for big-picture growth and future planning.
How we help
Finpoint is free to use. We’re 100% transparent about fees and rates, and give you access to the UK’s largest panel of business lenders. We’re also 100% independent. Our only interest is in making sure you get the right funding option for your business need.
Want to know more? Speak to us about funding.
