6 ways to finance your business’s growth and expansion

04/04/2022

Now that the last of the COVID restrictions have been lifted in England and with very few remaining in Scotland and Wales, it is refreshing to see just how many businesses are planning to invest in growth and expansion and put the turbulence of the past two years behind them.

With more than three-quarters of SMEs expecting to return to pre-pandemic levels of profitability in the next 12 months, two in five smaller businesses are also expecting to increase recruitment in 2022, according to research from Sage.

It’s also interesting to note that much of this business investment may be funded by existing cash reserves, with Nucleus reporting that 39% of SMEs are planning to invest over a third of their reserves into their business this year.

Not every business will find themselves in such a fortunate position, of course. Some may not have any cash reserves given the pressure their finances have recently been under, and any that do will be mindful of the impact rising costs and inflation could have.

So if you’re keen to invest in your business’s growth and expansion this year and capitalise on rising confidence whilst retaining any reserves, we take a look at some of the finance options available to help you achieve it.

Invoice finance

Invoice finance offers a flexible way to finance business growth and expansion for companies which offer credit terms to customers. By advancing up to 90% of the invoice’s value within 24 hours of the invoice being raised, invoice finance enables businesses to keep cash available to reinvest in expansion opportunities without needing to delve into their reserves.

It’s also therefore really useful for growing companies. Growing sales can place immense pressure on cash flows when trading on credit terms, with suppliers needing to be paid and orders fulfilled well in advance of receiving payment. Invoice finance provides continuous support and enables businesses to increase their order books in confidence.

Facilities can also incorporate bad debt protection and even a dedicated sales ledger management service for added comfort. Additional funding can be released against the value of other assets such as property, plant, machinery and stock with asset based lending.

Loans

Subject to suitability, loans can offer a fast and relatively straightforward way for businesses to generate the finance they need to fund growth and expansion.

With a large number of lenders on the market – far more than there once were – rates are competitive and businesses have plenty of choice.

Loans can be more difficult to access for businesses with limited trading history or a poor credit rating, however the cash generated can be used for any business purpose, from marketing and advertising to buying new plant and machinery.

Asset finance

Upgrading or replacing plant and machinery or equipment can be crucial to a business’s ability to grow. Having use of the latest kit may enable you to increase output, improve the quality of products or create new ones, for instance.

This is where asset finance can be a really useful tool, in that it specifically provides the funding for businesses to buy new assets without draining cash reserves or tying up cash flow.

Hire purchase and leasing are the most common types of asset finance, enabling businesses to either fund the purchase of an asset or alternatively to lease it for a set period, should it only be required for a short time.

Equity finance

Whether you’re a start-up or established business, equity finance offers a viable alternative to debt finance when it comes to raising investment capital.

If your business and proposition are suitable, equity investors will inject capital in return for a share of the business. Typically, the more they invest the higher the share they’ll expect.

Although not for every business – particularly as it means losing an element of control – equity finance can provide the cash and expertise the business may require in order to expand. Other than the funding element, one of the main benefits is that investors typically supply expert advice and support to help you run the business, as well as their ‘contact book’ to unlock new growth avenues.

Sale and leaseback

If your business owns commercial property such as warehouses or offices, sale and leaseback can help you to unlock its value to reinvest into growth or expansion opportunities.

It involves the sale and leaseback provider buying the property from you before leasing it back in return for fixed monthly rental payments over a pre-determined period.

Whilst providing the cash injection to reinvest, it also enables the business to continue using those premises – rather than having to downsize or find cheaper property elsewhere in order to release capital.

Trade finance

Businesses which import and/or export goods and raw materials internationally will be familiar with the amount of time cash is typically tied up in invoices.

By releasing cash against the value of these invoices before payment is due, it enables companies to access the funds that can be fundamental to seizing growth and expansion opportunities.

Solutions such as pre-shipment finance and post-shipment finance give businesses extra choice when it comes to choosing the facility which works best for them, with funding advanced in the favoured currency to mitigate fluctuations in exchange rates and bad debt protection often incorporated, too.