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Businesses need finance for a variety of different purposes, but there are some common reasons why businesses apply for funding.
Reasons can include business grants and loans for working capital, to buy machinery, to hire more staff, or even re-finance existing loans to reduce monthly costs. A British Business Bank Survey published in 2019 found that 44% of SME businesses sought some form of external funding in the previous three years. Read on to discover the 5 most common reasons that most businesses apply for finance.
Sufficient working capital is a key aspect of any company’s financial health, and not having enough working capital can have a serious impact on the future of your business. Many businesses choose to apply for external funding to create enough working capital to enable them to fulfil their growth ambitions. A loan can cover short-term funding requirements while giving the business the money it needs to grow, or can bridge the gap between customer orders and supplier payments to help the company meet its funding obligations. Figures from the British Business Bank’s 2019 Business Funding Survey showed that working capital is the most common reason for small businesses to seek funding.
Data from British Business Bank 2019 Business Finance Survey
Working capital funding can also allow your company to take advantage of new opportunities that arise, investing in new products or services to enable you to expand. Working capital loans can provide a useful ‘cushion’ for your company should you need a bit of extra cash – you’ll know your day-to- day running costs are covered with a loan, so you’ll have the funds available to meet any unexpected costs. Seasonal businesses may benefit from working capital funding during their quieter periods to cover basic expenses.
Growing your business and increasing sales often requires you to purchase assets such as new machinery or vehicles. While you may have enough cash to cover working capital expenses for your company, you may look for a loan to cover the purchase of new assets to enable your business to expand. An asset funding loan is a great way to spread the costs of acquiring an expensive new asset. Fixed monthly repayments and loan terms from 6 months to 5 years can help you plan your cash flow in advance so you can make the most of your opportunity to grow.
An asset purchase loan can be used to buy different things for your business, depending on what you need to fulfil your expansion plans. Funds can be used for business vehicles, whether you’re looking to buy your company’s first vehicle or want to increase capacity by adding to your existing fleet. You could also use a loan to buy office and IT equipment to make sure your staff have everything they need to grow the business, or new machinery to enable you to make new products or scale up production while spreading the cost instead of paying a large amount upfront.
Are you looking to forecast when you might need to apply for business funding? Check out Float Cash Flow Forecasting for easy to use, always up to date software that keeps your cash flow forecast updated automatically with what’s really going on in your business. Using scenario planning, you can plan for the months ahead and see any cash gaps before they happen.
In the current climate, many businesses are seeking out different means of funding. But in order to understand whether or not your business may need funding due to the COVID-19 outbreak, you need a reliable cash flow forecast. We’re currently offering a free trial to help you combat any coronavirus cash flow concerns and we have a COVID-19 hub packed with resources to support you.
Since 2011, Float has grown from humble beginnings as a complicated spreadsheet to a growing team that helps businesses across the world make informed decisions about their cash. Over the past decade, we’ve integrated with FreeAgent, Xero, and QuickBooks Online. There have been multiple awards, like Xero’s Emerging Add-On, a Software Excellence award for Best Forecasting, and an ICB LUCA Award for Cash Flow Software of the Year. See: https://floatapp.com/