Why Do Growing Businesses Borrow Money

Why Do Growing Businesses Borrow Money?

Entrepreneurs and small to medium-sized businesses (SMEs) keen to expand may believe that getting into debt is the last thing they want to do. 

However, there are positive reasons why a growing business might consider borrowing money from external sources like banks, building societies, or grant schemes. Other developing companies may turn to alternative means, such as crowdfunding and equity finance

Indeed, in the UK, a third of business loans went to SMEs. So, if this is something you’re considering, you’re certainly not alone. Leading research firm BDA BVRC found that in 2019, 46% of SMEs were turning to external finance, a rise of 10% on the previous year, to finance growth. 

In light of that, here are just a few reasons why growing businesses borrow money.

1. Meet Increased Demand

If your business is already up and running and you’ve had some initial success, that’s excellent news.

But, to expand, you may need extra investment to buy additional stock to satisfy demand and keep orders rolling in. 

2. Pay Start-Up Costs

Most businesses need some kind of financial investment to get up and running.

For instance, a loan to pay for a laptop, internet, stock, premises, etc. These types of loans may come from friends, family, savings, personal loans and/or credit cards.  

3. Reduce Personal Risk

Rather than using personal savings set aside for education, retirement or property investment, some business owners borrow money.

Rather than tie their hard-earned cash into their growing enterprise. After all, if personal money is invested in a business, it’s not available for its intended purpose.

4. Greater Investment

If used wisely, borrowed money can help growing businesses to generate more profits. These profits, in turn, will more than cover the cost of the original loan.

For instance, business owners keen to expand may spot a gap in the market or a growing consumer trend they want to capitalise upon. If that’s the case, borrowing money might be necessary to do exactly that. 

5. To Increase Cash Flow

All growing businesses face challenges. These include paying suppliers on time, which can put pressure on cash flow. It’s also important not to run out of stock so that you’re able to meet customer demand

Borrowing to increase your cash flow is one way to avoid those pitfalls. In fact, a boost in cash flow helps to keep the business moving, generating the necessary profits for expansion. 

6. Improve Your Credit Rating

If a business is snowballing without external financing, it may seem counterintuitive to start borrowing money.

However, if profits are good and growth is greater than expected, it may be a strategically sensible option to borrow. This helps to ensure you build a strong credit rating, so that you can access extra cash if your business growth slows down at a later stage. 

Before We Go

All in all, borrowing to boost your growing business can be a positive way of improving your financial stability and gain a competitive edge in the long-term.

So, if you haven’t already, this is a route to definitely consider. 

To learn more, get in touch with us today.

This blog was produced in collaboration with Vertical Vendors.

5 FACTORS TO CONSIDER WHEN REVIEWING YOUR PENSION PROVISION

The working world has dramatically changed over the last few decades.

Alongside factors such as technology, the way in which people move from one job to another is equally different.

For instance, a few decades ago, people learnt a trade or profession and joined a company intending to stay there; if not for their whole working life; for a good proportion of it.

However, these days, people move around the globe; redundancies are common-place and things are very different. As a result, people’s perceptions of pensions have also changed.

Here are 5 factors to consider when reviewing your pension provision.

1. Longer Life

With medical advancement and better standards of living, compared with years gone by, we’re all generally living longer.

This is evidently an important factor with regard to saving money for life beyond employment. However, not only is there a potentially longer life, there is a potentially longer life to finance.

Additionally, there is also a growing gap between finishing work and receiving a state pension. In the past, the state pension was paid to women and men from 60 and 65 respectively. However, from 2028, you’ll need to be 67 before this kicks in!

2. Temptation Free

Opting for a pension scheme can prove preferential to investing in something like an ISA.

By putting money into a pension, you’re ensuring it’s tucked away until you’re at least 55 years old.

Therefore, psychologically, it really is long term saving.

Whilst ISAs and other schemes can be great for long term savings, the funds are much more available. If times run a little hard, the temptation can be to dip into these savings along the way. However, pension contributions are more out of sight, out of mind and out of reach! 

3. Free Money

By 2018, the Government directed that all employers had to provide a pension scheme for all staff.

As such, even those employees who have not previously been involved in pension schemes are now automatically enrolled.

With automatic enrolment comes a massive benefit in terms of employers’ contributions.

Although by remaining in the scheme, you’re committing to pay into your pension fund, payments are deducted before tax. Equally, the money contributed by your employer is over and above your salary and it’s therefore, in effect, like getting a pay rise!

4. Tax Benefits

Although pension contributions are made before tax, when receiving your pension in retirement, it is deemed taxable income.

However, on retirement, it is possible to take out 25% as a lump sum, completely tax free.

Added to this, as an employee, if you’re a higher rate taxpayer, you save 40% when making your contributions but only pay 20% income tax when taking your pension. That has got to be good sense!

5. Flexibility and Accessibility

In the past, it was more difficult to keep a track of your pension plan.

For example, you would probably receive an annual statement in the post and little other communication.

However, these days, alongside increased choices; visibility and access to your pension scheme is available. There’s more capacity to have a greater interest in your pension scheme with online access 24/7.

Equally, there are also options as to whether to take your pension as a lump sum or as regular payments. Alternatively, you can keep it invested or even pass on any balance to your beneficiaries.

These days, flexibility is most definitely key. 

To learn more, get in touch with us today.

This blog was produced in collaboration with the Air Conditioning company in Leicester: HAR, and written by the team at SEO Agency London: Marketing Voice.

Jane Austen polymer £10 note enters circulation

The new £10 note featuring novelist Jane Austen has entered circulation – marking a return of a woman in addition to the Queen on Bank of England notes. The launch comes after a four-month period when women, apart from the Queen, have not been represented on the Bank’s notes.

Read More

The cities where tens of thousands have problem debts

In at least 10 areas of the UK more than a fifth of the residents are missing bill payments repeatedly, according to research. New figures from the Money Advice Service suggest inner-city areas are the worst affected. In Newham, in the east end of London, and Sandwell in the West Midlands, at least 22% of residents have problem debts.

Read More

UK inflation rate rises to 2.9%

The UK’s inflation rate climbed to its joint highest in more than five years in August as the price of petrol and clothing rose. UK inflation measured by the Consumer Prices Index rose to 2.9% in August, up from 2.6% in July, figures show.

Read More

No interest rate rise

Many economists do not expect UK interest rates to rise until 2019 despite inflation remaining above target, according to a BBC snapshot. They believe that the Bank of England’s Monetary Policy Committee (MPC) will be reluctant to raise rates during Brexit negotiations.

Inflation stood at 2.6% in July – well above the Bank’s official target of 2%.

Read More

1 in 4 landlords consider using pension lump sum

One in four landlords would consider using a lump sum from their pension to invest in property, with a further 24% undecided, research from BM Solutions shows.
The quarterly BM Solutions / BDRC Continental Landlord Panel revealed that while 77% of landlords view their property portfolio as part of their pension provision, 38% are not planning to withdraw a lump sum from their pension to invest in property or don’t have enough in their pension to do so. This rises to 48% for landlords with larger portfolios (20+ properties).

Read More

House Prices pushed up

A further drop in the number of people putting their homes up for sale is pushing house prices higher, according to surveyors.

A report from the Royal Institution of Chartered Surveyors (Rics) says new instructions by sellers have fallen “deeper into negative territory”. Meanwhile the number of inquiries from would-be buyers remains unchanged. As a result, most of the 308 Rics members who took part in the survey said house prices were now rising.

Read More

Inflation hits zero

Forecasts for growth in the UK have been lowered by the Bank of England in its latest inflation report.

The Bank says inflation hit zero in March, as previously forecast, driven by falls in energy and food prices. However, the Bank has made minor reductions in forecasts for growth in gross domestic product for the next three years.

Read More

Unemployment fall in March brings in best rate since mid 2008

Finance News UK unemployment falls. UK unemployment has fallen in March, bringing in the best rate since mid-2008.
Data from the Office for National Statistics shows that in the first quarter employment for those aged 16 to 64 rose to 73.5%, up from 72.5% a year earlier. Employment was up by 202,000 in the three months to March, reaching a record high of 31.1 million.

Read More
1 2