Businesses rarely exist without experiencing some form of debt. And that’s not a bad thing. From the bond issuance of multinationals to the overdraft’s of sole traders, businesses at all levels will often be required to take on debt to finance their ambition or operations, and this is no less true for SMEs.
So does that mean debt is good? Well rather that it’s not inherently bad, but there are of course certain forms of debt (either because they are unnecessary or unsuitable) which will of course be bad. What you need to avoid is the ‘finance trap’ – paying back large portions of your revenue each month, quarter or year, to service debt. Ultimately these businesses take on more debt to continue servicing the original debt, resulting in a downward spiral that is very hard to break out of.
Thankfully, there are ways to access finance and avoid these traps, so you benefit from the investment you need to support the many opportunities waiting for your focus.
Positive Debt has Good Qualities – Be Confident
Investment is not only required to allow a business to grow in the good times, but in the bad times too. That’s part of the reason all businesses experience some form of debt constantly, or at the very least, occasionally. Extra seating, extending opening hours, more advertising and catering for higher volumes at busy times requires investment in equipment and people. Periods of adversity can be a great opportunity to capture market share if your competitors are struggling to maintain their output.
If your business is running healthily and your bottom line is faring well in tough times, it’s a good bet you are doing things right. How many others fold because they have missed crucial signs that change was needed, or failed to make the right business decisions when good leadership would have allowed their business to flourish? So the question is “How do you finance growth for a business during tough times?”
Raise your own Finance – Engage with your Customers
Borrowing is often a last resort because with any small business loan comes a charge, normally in the form of interest you will need to factor into your running costs. Why not instead, if your business needs more cash, examine your business and consider ways to increase profit from each sale with your existing customer base?
We’re all familiar with loyalty schemes, asking customers if they’d like extras or offering discounts with bigger bookings or more sales. Are you using these tried & tested techniques effectively and with your most valued or new customers? These initiatives are (virtually) cost-free advertising techniques that any business can implement.
Ask for feedback or recommendations from your customers. At worst you could find nuggets of information on how to improve, at best (and if you go one step further), you’ve got an opportunity to ask them to feedback and share with friends. Let the powers of social media start developing your marketing for you!
Invest to Grow – Direct cash back into the business
Directing your own cash back into a business may sound like an obvious choice, but if that isn’t possible, then other sources of finance are around. Some may appear costly on first glance, but but consider this; if you invest in expanding your food storage (restaurants), en-suite bathrooms (hotels), next seasons fabulous new stock (fashion retailer)….it may be a cost well worth paying. You may even be able to take advantage of those tried & tested bulk buying tactics employed across industries. The value may stretch beyond the original purchase, for example making fewer trips to wholesalers meaning you make less unnecessary purchases, spend less on fuel, and it will take less time out of your day so that you can work where you work best – running your business. Borrowing for something that will reduce costs or increase profits is far from a bad business choice.
Invest and Repeat Your Success
If you are confident your business model is repeatable, consider expanding or taking on a new premises where similar businesses have recently failed.
If a recently closed restaurant had been in business for many years and closed without warning, there could be many reasons, but it’s unlikely a business would become unviable overnight. If your business model works more efficiently, to the correct target market and you have a proven method of creating a successful business, why not welcome the opportunity to service the customers that once frequented your unfortunate previous competitor?
The Right Finance Choice – for you
Choosing the correct finance option is critical for your business to operate efficiently. Secured or unsecured small business loans are fine if the repayments are low and you still have plenty of income to accommodate change.
Beyond the banks, there are alternative forms of lending which may well suit your needs better than the traditional loan. Some even offer repayments in line with your takings, so your repayments ebb and flow with your earnings.
Do your research and see which ones are best for you. As a starter for 10, have a look at Business Cash Advance. You only receive an amount based on your card sales and your repayments are linked to card takings. Repaying a fixed percentage of your card sales means you never over commit to a small business loan because they only get paid when you get paid.