The issue of funding is central to the development of small businesses in the UK, even in a digital age where eCommerce is thriving and startup overheads are dramatically reduced.
There also remain a number of schemes and initiatives that continue to help small and medium-sized businesses, with thousands of such firms having recently been approved for £25 million in funding as part of eBay UK’s finance program. But why do firms apply to get a mortgage in the first place? There are multiple reasons, of course, but here are some of the most pressing.
3 Reasons Why Businesses Apply for Funding
1. Cash Flow Problems
This is perhaps the biggest reason why small or even large firms require financing, especially those that find themselves hampered by 60 or 90-day invoice terms. In these instances, startup firms can struggle to fulfill orders when starting out, creating the need for an injection of cash flow to help drive workloads and create momentum within the small business.
There are also various types of finance available to help this particular problem, with invoice financing offering an accessible and convenient option. This effectively allows you to sell your accounts receivable to third-party investors, with this short-term debt ultimately repaid when the client in question settles their invoice. This allows firms to thrive and negate troublesome payment terms, without encumbering the venture with long-term debt.
2. Growth and Expansion
Next up is growth and expansion, which may require investment in instances where you need to commit cash as a way of scaling your venture to cope with an increased workload. For example, you may take on enough clients or projects to employ more permanent staff members, creating the need for a much larger and capacious workspace that has ample room and areas where employees can collaborate. This is an extension of requiring cash flow to function, of course, although the main difference here is that this money is invested in the long-term future of the business and larger sums of money may be required.
3. Debt Restructuring
For more mature companies, there’s a risk of accumulating debt in a number of ways over time. This may require you to restructure this in some instances, with some loans available to help consolidate your borrowings and reduce costs (or repayments) going forward. This process is referred to as debt restructuring, while this is widely used to make your finances more manageable quite simply by reducing the number of your monthly repayments to track and fulfill.
Refinancing and restructuring your debt can enable your business to grow, by freeing up cash within the business for working capital and expansion. Some people may also refer to this as debt consolidation, but the key premise here is that you make your liability more manageable and ease your financial circumstances for the good of the venture.