In the two years since the coronavirus pandemic began, there has been much focus on enabling businesses to survive.
The UK government announced initiatives like the furlough scheme, Coronavirus Business Interruption Loan Scheme and Bounce Back Loans, each designed to provide funding to companies to allow them to mitigate the impact of COVID disruption and lockdown restrictions. More recently, the Recovery Loan Scheme has continued to support businesses as they seek to stabilise, with funding available until 30th June 2022.
With these loan schemes, the emphasis in business has been on survival. While this has proven a lifeline for many SMEs, it has left minimal room for growth, even for those who have experienced unprecedented demand.
With lockdown restrictions seemingly behind us, it seems that the tide is changing. The desire for business growth – and finance that facilitates it – is heightening as more companies dare to look ahead to the future and their vision for the post-pandemic world.
This guide explores how to access growth finance, following a period in which survival has been the dominant focus, and why it matters so much for businesses.
Why is growth finance necessary?
The Iwoca SME Expert Index, which provides insight into how SMEs utilise finance, published its Q3 report in November 2021. In its findings, 35% of finance brokers reported that the top reason for applying for funding was growth – 12% up on Q2.
In the Q2 report, the most common reason for funding was to improve cash flow, this latest report suggests that more SMEs are now prioritising expansion. There was also a decline in how many SMEs required funding to recover from lockdown restrictions, highlighting the start of a shift from survival to growth.
In October 2021, Britain’s Office for Budget Responsibility also upgraded its growth forecast to predict an expansion of 6% in 2022, showing hope for economic recovery. This is likely to provide confidence to businesses, who may use this time to scale after surviving the hardships of the last few years.
The data from both reports suggest that we are gradually moving past the stage where businesses need support to remain afloat, with more SMEs actively looking to grow.
Increased business growth will likely prove key in boosting the economy after the record slump of 2020. As more SMEs expand, it brings more jobs, increased tax payments and new products and services.
It will also improve resilience for businesses, especially as challenges remain – such as rising inflation and costs associated with skills gaps and supply issues. With more companies able to grow, we will benefit from a diverse and healthy business population, driving competition in the market that serves customers and offers choice.
How to access growth finance in 2022
With the rising desire for SMEs to grow their business, they need to access appropriate financial support that will empower them to fulfil their goals. We’ve explored the top solutions below.
Loans
Although much attention has been paid recently to survival loan schemes, like the CBILS and Recovery Loan Scheme, other lending options are still available for expansion. It’s worth approaching alternative lenders (who may have more flexible solutions) and even banks to uncover what support they can offer.
If you can find a suitable loan for your needs, it is possible to get funding to support your growth plans. You will need to be transparent about what the loan is for, which means having a careful strategy to present to lenders. You will also need to be confident that you can meet the subsequent repayment schedule, which is why this option tends to work best for businesses on financially stable grounds.
Equity
Another viable route for growth funding is through investment, which continues to be readily available for high growth ventures. In exchange for shares in your business, funders will invest significant sums, which will offer dividends as your company grows with the expectation of future share capital growth.
If you want to secure funding, you will need to approach investors until you find one willing to work with you and matching your criteria. All investors will expect a strong business plan, which is pitched effectively to illustrate your value and ability to grow successfully.
Not all businesses will be accepted for equity funding, which means you may have to make numerous attempts before finding the right investor or investors. However, if you do, they can also add value through helpful guidance and support.
P2P lending and crowdfunding
An alternative form of finance for flourishing businesses is crowdfunding, or its debt counterpart, peer-to-peer lending. When using either, the funding platforms pool together finance from smaller investors as well as institutional investors in exchange for capital and interest repayment (in the case of P2P) or equity (crowdfunding).
You need to create an exciting marketing campaign that inspires people to invest in your company. By doing so, you stand a better chance at raising sizeable sums.
Grants
Depending on what your business does and what you aim to achieve through your expansion, it may be possible to obtain grant funding. This might be for ventures in specific sectors, tackling issues, such as sustainability or innovation or investing in high value equipment.
Use the government’s tool and broader research from relevant institutions to identify any grants that may be relevant to you. If you find any you may be eligible for, it’s worth applying to see if you can secure funding. It is likely you might need to match an element of the grant, but the amount varies and grants are not repayable.
Cash flow solutions
When scaling a business, one of the considerations is how cash flow will be affected. Often, as you grow there are delays in timings between cash coming into the business and expenditure being required. This creates situations that can put a great strain on your business.
To prevent cash flow from being overwhelmed, you can use short-term solutions to keep things moving. These include:
- Trade finance, to fund orders you send overseas or supplies sourced from overseas
- Invoice finance, which releases money tied up in your unpaid invoices
- Stock finance, raising finance against stock sat in your warehouse
- Leasing and hire purchase – solutions that allow you to fund new equipment by spreading their cost
Although these do not directly facilitate growth, they can help you improve cash flow within your operations, making the expansion process more manageable.
Conclusion
The data suggesting that more businesses are looking towards growth is welcome news. It signals the worst of the pandemic may be over, with an increasing number of companies able to say they are focused on the future.
As more enterprises expand, the economy will grow, improving business resilience and consumer confidence.
However, it is integral that SMEs can access the finance they need at this turning point. This means understanding the external growth options available and identifying one that suits your unique needs and objectives.
If you are looking to grow your business in 2022 and achieve your goals, we can help you identify suitable funding options.