Whether it’s a need for working capital, or a desire to fund new projects or expansion, there are several reasons why a business loan might be needed. Predicting when your business will need to borrow money might seem like a crystal ball exercise, but it doesn’t need to be. There are many signs and signals that a small business owner can measure, to help predict the need for a short-term cash boost.
1. Your working capital needs improving
Working capital is vital for any business’ growth, especially small businesses. Almost all businesses will experience periods when available working capital is at a point where there is not enough to cover the bills. A loan to boost working capital can improve a company’s cash flow position and ward off any immediate risks associated with unpaid invoices or wage bills, for example.
Our cash flow hub can help owners improve their cash flow forecasting and better predict when their working capital may need a boost.
2. Improving productivity
Even before you consider the energy consumption cost impact of inefficient machinery, having out-dated kit in your production line can impact the time it takes to produce your goods and increase the likelihood of costly machine downtime. Business owners should evaluate their current machinery against the speed, energy-efficiency, connectivity, and service levels of newer models. It may well be that investing in efficiency now, will deliver returns in the future.
Of course, it’s not just in production machinery where efficiency could be improved through investment. New systems and technology can improve efficiency in your processes and operations, driving increased profit margins. Owners should look at the task lists of each of key departments and make an assessment as to how much of the existing tasks and processes could be replicated or made simpler through new systems. This would allow departments and employees to focus on higher-values tasks.
3. There’s a spike in demand
Small business owners can often be caught out by not being prepared for the operational impact of a period of increased demand and higher levels of sales. For many smaller businesses, a high volume of sales can put strain on the inventory (see below) as well as the production/ fulfilment, finance, and customer-handling elements of their businesses.
Most owners will always have a keen eye on sales figures, but they should also look at some of the lead indicators (website visitor numbers, volume of sales meetings, proposals sent etc) to map how that is likely to translate into sales numbers. Being able to pre-empt a spike in sales will allow owners to prepare any required increase in inventory, subscriptions, staffing or production capacity. These items will come with attached costs and some owners may want to explore a loan to fund this expansion before the predicted sales impact hits.
4. There’s a market opportunity
In this period of market movement – as competitors struggle and buying habits change – it might well be that a small business loan is required to capitalise on an exciting new opportunity. Events such as a new store location becoming available, or the opportunity to pivot your operations to meet a new market segment can be good reasons to seek an injection of cash.
Equally, it might be about investing in recruitment and adding new skills in your workforce or funding marketing activity to boost your sales pipeline. Expanding to new markets or product lines makes you less reliant on a particular revenue stream and makes your business more resilient in uncertain times.
According to the Department for International Trade, only one in ten SMEs currently export their goods and services. But the benefits for those who do are manifold. Tapping into an international buying base increases your revenue potential, increases your resilience and spreads your risk from localised market fluctuations. Read more about the benefits of exporting here.
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Owners should regularly and proactively assess their product and service against the market. This will help understand where there are opportunities for expansion. Knowing there’s a real business benefit to be realised will help you understand whether the time is right for borrowing, as well as improving the chances of success when you do apply.
5. You need to increase your inventory
One of the biggest expenses for a business – no matter the type – is inventory. It’s often the case that a small business will need to buy inventory ahead of seeing the associated sales revenue. This is particularly true for seasonal businesses where often large reserves of stock will need to be secured ahead of the high sales period. Many smaller businesses will look to secure a short-term loan to purchase the required inventory to get the business prepared for the season.
Whatever the reason for needing a loan, finance can be a necessary for smaller businesses to navigate the tough times or take advantage of new opportunities.
At Capify we offer a range of business loans to help support your business through high and low periods. These are repaid via small regular payments, rather than large monthly payments, thus helping you to manage your cashflow. Check to see if you’re eligible for one of our loans with our online eligibility checker. Or, if you’d prefer to talk to a member of our team, we’d be happy to guide you through the process. Give us a call today on 0800 151 0980.
