Why do Businesses apply for Funding?

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The survival rate for SMEs is notoriously low. According to data gathered by the Office for National Statistics, around 11% of businesses in the UK go under every year. Moreover, it’s only a minority of businesses that continue to prosper, grow, and manage their fortunes from year to year.

In many cases, it’s an injection of outside finance that spells the difference between success or failure. But emergency life-support isn’t the only reason that a small business might seek funding from the outside. Let’s take a look at some of the factors which might influence the decision to apply for a business loan.

Working Capital

Undoubtedly, the most common reason for a business to seek outside finance is in order to bolster their working capital. Having an extra cushion of cash available allows a business to take advantage of any new opportunities the moment that they emerge, and for any unforeseen costs to be met. By taking a proactive approach, businesses can secure the finance they need before they’re put into a perilous situation. This means that they can take their time making a decision – and avoid making mistakes that might prove costly in the long-term.

New Assets

Sometimes, the purchase of new assets is necessary for the business to prosper. If you’re running a shop, for example, and the freezer suddenly breaks down, then you’ll need to get a replacement in as soon as possible to maintain the same level of sales. This might be covered by your insurer – but what if you need an additional piece of equipment that you don’t already own? That’s where finance comes in.

Business Growth

A period of growth can be an exciting time for a business – but also a potentially dangerous one. The availability of additional liquidity will help a business to absorb all of the bumps in the road which might occur during this time. Getting a level of finance that’s appropriate to your projected growth means doing your research ahead of time, and formulating and maintaining a good business plan.

Hiring new staff

If a business lacks the right staff to operate at its potential, then an injection of extra cash might help to fix this. New recruits can be attracted and onboarded, while existing employees can be given the incentives they need to remain part of the team.

Cash flow problems

Businesses which encounter problems with cash flow can often find themselves drawn in a self-sustaining negative spiral. A client might not pay promptly, which might leave the business unable to pay its bills, or its staff. This might in turn prevent payments from being collected promptly in future.

A dose of cash can help to arrest this spiral, and steer the ship through choppy waters.

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