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5 Reasons SMEs Look for Funding Options

6 in 10 Australian SMEs have sought out external funding in the last decade or so. This is a startling statistic and shows that every business will likely require finance at some stage. You probably haven’t given any thought as to why an SME might seek funding. However, there are a few common reasons.

In this article, we look at five of them – including to purchase assets, hire more staff and  refinance existing loans to reduce monthly costs.

So, without further ado, let’s get started.

1. Working Capital

Every business needs working capital for smooth functioning. And this is especially true in the case of SMEs. Positive working capital indicates good financial health. If you do not have adequate working capital, it can seriously hamper the future growth of the business. During such times, you can acquire external funding to provide working capital for SMEs.

This funding option allows you to fulfil your growth ambitions. It usually covers short-term funding requirements. The funds can be used to grow the business or bridge a gap between customer orders and supplier payments. It is all about meeting the financial obligations of the company.

With the help of these types of loans, you can take advantage of new opportunities and invest in new products or services to expand your scope of business. It can provide an extra cushion for your SME, which can help in running your day-to-day expenses smoothly. This type of funding option is particularly good for seasonal businesses, to cover necessary expenses during quieter periods.

2. Purchase of an Asset

If you wish to grow your business and increase sales, chances are, you will need to purchase assets like new equipment or machinery. You might have adequate cash on hand for working capital; however you might need to turn to equipment finance in Australia to cover new assets.

This type of funding option gives you leverage to spread out the costs of acquiring an expensive new asset rather than paying for it upfront. You have the choice of fixed monthly repayments and loan terms from six months to five years, which can allow you to plan your cash flow in advance. This way, you can make the most of the opportunity to grow.

The equipment finance option can be used to purchase business vehicles, whether it is your first vehicle or you wish to increase your capacity by adding to your existing fleet.

This loan can even be used to purchase office and IT equipment to ensure that your staff have everything they need to help grow your business. You can also get a piece of new machinery to scale up your production, without needing to pay a substantial amount upfront.

3. Commence a Business

New businesses require funding to get off the ground. Most of the time, the business owners will utilise their own funds. However, only a few can manage self-funding for an extended period. Sooner or later, they will likely face a cash flow problem which makes them seek external funding.

Other funding options also include bank loans, borrowing from family and friends, crowdsourcing, equity investment from a business, and funding grants. A loan that is taken to start a business can be used to buy stock, spend on marketing efforts, or even to hire staff. However, it is tough to get external funding for start-ups as it requires comprehensive information like a detailed business plan.

4. Growth Funding

If you want to take your SME to the next level, you may require funds to execute your business plans, whether that’s increasing sales, expanding your range of products or services, shifting to bigger office premises, hiring more staff or expanding globally. A growth funding option can help you take advantage of new opportunities and make your dreams a reality.

These types of loans have a fixed monthly repayment period as per the loan duration. This way, you can easily plan your business finances as you grow.

5. Debt Restructuring

The debt restructuring funding option can help you consolidate your borrowings and reduce costs to make your finances more manageable.

By restructuring using this funding option, you can cut down on your existing debt and reduce the number of monthly repayments. This way, you do not have to keep track of multiple loans. Refinancing your existing company debt is a wise option that can help free up cash, which can be used in the form of working capital or for expansion of your business.

Final Thoughts

So there you have it – five common reasons SMEs seek external funding options. If you are looking to grow your SME but are facing a cash-crunch situation, get in touch with UnlockB2B, a prominent peer-to-peer lending platform that matches investors with SMEs seeking business loans.