Five benefits of business finance

When you launch a business, you need enough money to get it off the ground, and as your business develops, finance could drive growth.

Entrepreneurs could enjoy several benefits when using business funding.

We outline the key benefits for businesses below.

As with all financial products, its worth seeking independent specialist advice to determine which business finance options are suitable for your business.

Read our guide on how to boost your business resilience with finance.

Working capital

To maintain its day-to-day operations, a business needs working capital.

It’s the money you have left once you have accounted for the funds coming in and out of your business.

There might be times when you face cash flow challenges, such as a supplier not paying an invoice on time or increasing business costs.

In these situations, working capital finance could help.

Options include:

  • working capital loans – debt funding that is taken out over the short or medium term
  • purchase order (PO) financing – a loan to pay a supplier for the goods your business needs to fulfil a customer order
  • invoice finance – the main types are factoring, which involves a lender paying you up to 90% of your invoice’s value, or invoice discounting, which involves paying a fee and discount charge if you use the funding
  • overdrafts – a line of credit on your business bank account that lets you borrow more than your capital can cover
  • asset finance – finance that uses assets on your balance sheet as security against lending.

Fuelling business growth

Accessing finance could aid business growth.

Entrepreneurs could use it to invest in scaling activities such as:

  • product development
  • marketing
  • hiring new staff
  • purchasing equipment
  • buying new premises
  • purchasing another business
  • expanding into a new market.

How do businesses finance growth? Find out in our helpful guide.

The growth finance options available to small and medium-sized businesses include:

  • business loans – secured or unsecured funding that you pay back, with interest, over an agreed period
  • crowdfunding – businesses publish their pitch on a website that allows investors and members of the public to contribute funding.
    Equity crowdfunding involves giving away shares while using reward crowdfunding; businesses provide a non-financial reward
  • angel investors – high net-worth individuals who provide their own money in return for a minority stake in an early-stage business.
    They usually invest between £15,000 and £500,000, although it could be up to £2 million from a syndicate of angel investors
  • venture capital – venture capitalists invest in early-stage businesses with significant potential for growth and profitability. They typically invest in multiple rounds and provide several million pounds
  • Start Up Loan – a government-backed low-interest personal loan of up to £25,000 to help entrepreneurs start or grow a business.

Businesses that secure a Start Up Loan and have been trading for no more than five years may be eligible to apply for a second loan.

Enhancing financial stability

Businesses need to be financially stable.

Businesses should be able to cover all expenses without worrying about where the money will come from to pay the next bill.

Business planning helps to ensure stable finances, but unexpected circumstances might require extra funding.

Funding options such as overdrafts provide short-term cash flow, and building a solid relationship with financial institutions means you may be more likely to access credit facilities when needed.

Settling loan repayments on time, providing accurate information, and being communicative with your lender can help to achieve this.

Improving business credit

Like individuals with personal finance, a good credit score is a valuable thing for any business.

Banks and investors use it to make decisions about lending or investments, and because it is publicly available for anyone to view, customers and suppliers can check it.

A low credit rating could be a reason a supplier decides not to sign a contract with you due to a concern that you won’t be able to pay your bills on time, or a customer might be put off from buying your products or services because they think your business isn’t stable.

A strong credit score means you could access lower interest rates and better financing terms when taking out a loan or another form of finance.

Using finance responsibly could help small and medium-sized business owners to build a strong credit profile.

Making loan repayments on time and settling bills promptly helps improve your score and increases the likelihood of you accessing further finance.

If you have a poor score you might be prevented from sourcing the finance you need to grow your business.

Attracting investors and partners

With a solid financial foundation, a business can demonstrate its viability and growth potential to potential investors and partners.

Your financials should feature in your business plan.

Investors will want a robust plan when deciding whether to back your business.

Showing that you have already accessed funding could help to convince them.

Alongside the financial data in your business plan, you also need a cash flow forecast, profit and loss statement, and a balance sheet.

When presenting to investors or partners, key financial data, including the finance you have accessed, should feature in your pitch deck.

It should be a concise, engaging presentation that sparks interest in your company and excites the investor or partner.

Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.

Making business finance work for you

Our Making business finance work for you guide is designed to help you make an informed choice about accessing the right type of finance for you and your business.

Read the guide to making business finance work for you

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