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Even before the coronavirus, there’s no doubt that small businesses in the UK were becoming increasingly reliant on external funding and borrowing.
A British Business Bank Survey in 2019 found that 44% of SMEs had sought some form of external funding during the previous three years, for example, while this figure is only set to increase in the future.
But why do businesses need funding in the modern age, and what are the best ways for SMEs to source financial assistance?
Why do SMEs Seek Out Funding?
There may be a number of reasons why SMEs require some form of funding, depending on their unique nature and the market that they operate in.
While some motivations will be intrinsically linked to growing a business over time, others are focused on funding everyday operations and negating the challenges posed by extended invoice terms.
In fact, the single most popular reason for SME funding is to create sufficient levels of working capital, which is central to every functional business and a key indicator of financial health.
Similarly, a growing number of today’s small businesses struggle to create viable levels of working capital or cash flow without external funding, with invoice terms of 60 or 90 days making it particularly hard for startups to cope in the short-term.
As a result, firms may well seek out short-term loans or options such as invoice financing, which enables entrepreneurs to sell their accounts receivable and receive an immediate cash boost.
Firms may also seek out cash to fund asset purchases, typically in the form of new machinery or vehicle fleets. This enables you to cover any funding gap that exists within your business, such as instances where you’re able to account for working capital exp… Read More
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