Knowing when to put finance into your business – and where that finance should come from – is essential for business growth.

When it comes to business, your financial resources are critically important. If you’ve not got decent cash flow and some cash in the bank to smooth out some ups and downs, it’s always going to be a struggle.

Easier said than done, of course. But when it comes to growing your business, what’s the best path to take? Organic growth sounds nice – after all, your hard work will create new opportunities to reinvest, and you’re not taking on additional overheads and financial commitments until you’re ready.  

But new opportunities spring up all of the time – and if you wait until the stars perfectly align you could be waiting for a long time. Sometimes you need money.

As the old saying goes, you need to speculate to accumulate.

You can, of course, look to your personal finances to invest. After all, interest rates will be lower… just make sure to speak with your accountant about the best way to do this. Alternatively, you can raise money by offering key employees the opportunity to buy in. While you will dilute your stake, buying in can lock key people into the business, which would be beneficial, particularly during a period of growth. 

Considering funding for your business

If you need to seek external financing, however, there’s a lot to consider. Tony Xia, Director at The Mortgage Agency, says the ideal timing to pursue financing for growth depends on several key factors.

“Firstly, it’s essential to assess the business’s current financial health and stability. If the business has a strong revenue stream, positive cash flow, and manageable debt levels, it may be a suitable time to explore financing options.

“Secondly, opportunities for expansion or investment should be considered. If there are clear growth prospects such as expanding into new markets, launching new products, or scaling operations to meet increasing demand, investing in marketing campaigns seeking financing becomes more viable.”

Does the opportunity requiring finance align to your business plan?

An interesting point to consider in this situation is how the opportunity aligns with your strategic plan. Is it on the road map, or is it a whim?

Tony says, “Businesses should align financing with their strategic plans and long-term goals. If financing can be used to fund initiatives that will generate returns exceeding the cost of borrowing, it may be a favourable time to pursue funding.”

The key thing to consider, of course, is finances. Obvious, yes. But sometimes it’s easy to overlook the impact of taking out finance on the business’s financial health.

After all, it’s easy to look at the lump sum as money to spend, rather than the cost of buying the access to that money in the first place.

Do your sums, and make sure you’re going into it with your eyes wide open.

Evaluate the cost of financing and its impact on the business’s financial health. Assessing the interest rates, repayment terms, and associated fees is essential to ensure that the financing arrangement aligns with the business’s financial capabilities and growth objectives.

“Timing should consider the urgency of the growth opportunity and the business’s capacity to absorb additional debt,” says Tony. “If delaying financing could mean missing out on a lucrative opportunity, it may be prudent to act swiftly, provided the business can sustain the debt burden comfortably.”

As always in these situations, getting professional advice is key – speak to your accountant or financial advisor to get advice tailored to your situation.

However, if the opportunity is genuinely there, then it’s certainly worth exploring at least.

You just need the resources to do so!

 
Types of business finance

Business finance generally comes from one of two routes – debt finance or equity finance. Here’s the lowdown.

 
Debt finance

Debt finance involves borrowing money that must be repaid with interest. Common types include:

1. Bank loans: Traditional loans from financial institutions
2. Asset finance: Using company assets as collateral for loans
3. Line of credit: Flexible borrowing option similar to a credit card
4. Invoice finance: Turning outstanding invoices into immediate funding
5. Business credit cards: For small, everyday expenses
6. Merchant cash advance: Financing based on future card payment revenues

 
Equity finance

Equity finance involves selling part ownership or shares in the company in exchange for capital. Types include:

1. Crowdfunding: Raising small amounts from many people, often online
2. Venture capital: Significant investments in high-growth potential businesses
3. Angel investors: Individuals providing capital in exchange for equity
4. Family and friends: Personal connections investing in the business