How to Finance Growth in Your Business

There is a lot of advice about how to grow your business, but how do you finance that growth? You may need more machinery, more staff and more stock. Funding will be a key part of that growth strategy.

The funding can come from your own capital injection as you invest in the business, third party investment where you give away equity to have a smaller shareholding in a larger business or from borrowing. As a business finance advisor I will be focussing on your options for borrowing to fuel growth.

If you are expanding and you require new vehicles or machinery then asset finance can be a good source of funding. The assets you are buying provide the security to the lender. The funding can be matched to the useful life of the asset. The asset finance market is active and competitive meaning that rates are reasonable.

We often come across businesses where they have received their dream order but the supplier wants paying before the goods are released. If the end customer is on credit terms you will have to wait to be paid after delivery. This creates a funding gap. If you have a confirmed order you can bridge this funding gap with a trade finance facility.

If you are growing sales you may want to grow your stock levels. Particularly in times when supply chains are disrupted. You could use a supplier finance facility where you pay suppliers with this revolving facility and then repay it after 90 days. The alternative is a stock finance facility. Stock funding can be useful. However, in many cases you require an invoice finance facility to operate alongside it.

Invoice finance is readily available to businesses that are selling to other businesses on credit terms. The market is active and competitive. It has arguably become the replacement to overdrafts for businesses that sell B2B. One of the beauties of invoice finance is that it naturally grows as your sales grow. If structured properly it can be an excellent source of working capital that can prevent overtrading.

Asset Based Lending (ABL) can be an excellent solution and can allow a business to make a real step change. It is an invoice finance facility with extras. The invoice finance facility sits at the centre of the structure with additional funding being generated against inventory, plant & machinery and property.

If your growth is restricted by funding then consider what options are available to you. Even if you have existing funding in place we may have better solutions. We are currently working with a client where their existing ABL facility is restrictive. They are limited because their element of stock funding cannot exceed the funding against debtors. They want to build stock to take advantage of bulk buying discounts and to limit the risk of supply chain disruption. We are implementing a facility where the stock funding can be 2 X the funding against debtors.