Funding For Growth

Business Insights
21/10/2015

Your business is growing and that’s fantastic, but decisions need to be taken now which will affect your business’s long term future.

Do you take on more staff, move to larger premises or extend or reorganise your existing space? Do you need to invest in new machinery, technology or vehicles, should you lease or purchase and, crucially, where is the money to come from to fund your plans.

You are not alone in planning for growth; the upturn in the economy is seeing many UK businesses making purposeful decisions to focus on hiring and operational expenditure.

Success is for the bold, but before you make that leap take some professional advice, sit down with your financial advisor and draw up a plan for the next 5- 10 years. Decide where you want to be when, and set some realistic goals, based on what you have achieved so far; you can always upgrade them later.

Smaller companies may prefer to take advice from one of the many Government sponsored web sites such as the GrowthAccelerator programme, a government-backed service offering support to businesses with the potential to improve and grow. They can help you to achieve your potential by identifying barriers to growth and providing tailored support that fits your needs, including coaching, consultancy, mentoring, training, access to finance and export advice.

Armed with your new business plan your first point of call for funds is likely to be your bank. If they are unable to help the big banks now have a responsibility to refer customers that they’re not able to support to panels of alternative lenders, this is a huge step forward, because there is still a very significant over-reliance on the high-street banks.

There is a wealth of alternative lenders some backed by government through Regional Development Funds, others by some of the major banks and your broker’s advice will be invaluable here.

Due to the increased range of funding options available many successful smaller and medium sized businesses have been able to access the funds they need to grow, and now after two years of increased capex investment, SMEs are responding to the growth opportunities with faster workforce expansion and efficiency programmes.

2015 saw many UK SMEs entering the skills investment phase of the capital expenditure cycle and planning to create a record 737,000 jobs and spend £37.9bn in the next 12 months, predominantly on upgrades which will directly boost productivity.

According to ABFA, asset finance through leasing and hire purchase in 2014 was at its strongest rate for seven years, indicating that businesses are thinking more strategically about their mix of finance.

Ian Wilkins, lending leader, UK commercial and corporate lending at GE Capital UK, said “We are beginning to see businesses become more savvy and deliberate in their investment choices and how they finance them, and this is really encouraging”.

For many, capitalising on their existing assets, whether in the form of a loan against premises or equipment has become the norm, the principle is similar to a mortgage, with a fixed term and repayments which include interest.

The debate as to whether it is more cost effective to lease or buy premises, equipment or vehicles will depend entirely on your style of business and the aforementioned 5-10 year plan. How fast are you expanding? If you move now to slightly larger premises in order to avoid paying for too much new space, how long will the new premises be suitable? If you foresee multiple moves perhaps rental or lease might be better for you.

Then when replacing equipment and vehicles leasing carries certain advantages over purchase like the fact that up-front expenses are generally lower, and the monthly payments are much lower than loan repayments. In the case of vehicles maintenance costs are next to nothing, since most warranties for new cars last three years -- which is usually around the same amount of time as the average lease period. However at the end of the term you will need to start again and won’t own the vehicle or equipment unless you are prepared to pay the settlement figure on the lease.

Funding need not be a barrier to growth, help and advice is out there, making funding accessible, but remember to take advice and make sure that you have factored the costs of your chosen route into your plan.