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Many business owners see ‘debt’ as a scary word that should be avoided at all costs. However, the opposite can in fact be true. Borrowing money for your business offers a number of benefits and can improve your chances of commercial success. Here are 10 reasons why:
1. Stay ahead of competition
Despite current economic uncertainties, the number of SME’s is continuing to grow, and with all the competition out there it is essential that you continue to invest in growth and development. If you don’t have the funds available to keep up, then borrowing money can be the boost you need to stay ahead of the competition.
2. Keep up with the times
Having the latest plant, equipment and machinery can help improve processes, increase efficiency and take on more substantial orders. But, having the necessary working capital to make these purchases can be a challenge. By borrowing money your business will be able to gain access to the necessary funds to make large purchases that you might not be able to afford otherwise.
3. Improve credit score
When you borrow money and make your credit payments on time you can significantly boost your business’s credit score. This then makes it easier to secure further credit in the future so that you can continue to be successful.
4. Boost working capital
Often, when a business trades on credit terms, cash flow can be stretched as suppliers need to be paid ahead of receiving payment from customers. And when a business is experiencing rapid growth, this can become even more of a problem, meaning that continual borrowing is needed to make sure that enough money is available at all times to meet day-to-day commitments.
5. Make more money
Whilst borrowing does provide businesses with an added expense, often using the investment can generate more money than it costs to borrow. With improved access to working capital businesses can take advantage of new opportunities in the market as and when they arise. This can lead to an increase in sales and profit.
6. Reduce personal risk
If you have personal savings, it may be tempting to invest them into your business and save money on finance fees. However it can be risky business tying up personal savings in your business, and it could come back to bite you further down the line. By borrowing the money instead you can keep your personal savings intact.
7. Take advantage of supplier discounts
Having access to working capital can put your business in a better position to take advantage of incentives like early settlement discounts. This can save your company money which can be better spent elsewhere.
When most people think of borrowing, they think of traditional bank products such as loans and overdrafts. Yet developments in the commercial finance market mean there are a number of more micro finance institutions like Mwananchi Credit ready to fill the gap.
Whether you’re using the money to meet your day-to-day needs or to fund expansion, the amount of funding you can access through invoice finance grows in line with your sales ledger giving you greater flexibility. This is particularly good for seasonal or growing businesses who may need to scale their funding up or down to meet demand.
9. Added expertise
With factoring, as well as boosting cash flow, a dedicated sales ledger management service is incorporated which can significantly reduce in-house overheads and improve your credit control performance. This means you will be able to focus your time and effort on other aspects of managing and improving your business rather than chasing payments from customers.
Unfortunately, late payment poses a threat to even the most successful businesses – and even when you have a full order book you could still wait months for payment. This can seriously hamper your business growth and put strain on your working capital. However, with invoice factoring the lender can credit check potential customers, meaning you are likely to trade with customers that pay on time, protecting you from the threat of debtor insolvency.
Source: Hilton Baird Financial Solutions