How to Use Business Finance for Growth and Cash Flow Management 

One of the best ways to grow your small business faster is to use the right finance options to do it. As long as you use business debt wisely to grow your business, it will be what is known as “good debt”. Good debt increases your revenue or boosts your productivity — or ideally does both. 

Read on to find out how you can use business finance as good debt to grow your business and manage your cash flow.

How can business finance help you to grow your business?

Business finance can help your business to grow in a range of ways, including allowing you:

• Buy more stock or raw materials so you’ll have more products to sell to your customers.
• Buy more business assets and equipment to help you produce more goods.
• Fit-out your commercial premises to better suit your business needs.

Business finance can also help you to grow by allowing you to acquire another business (for example, one of your competitors).

How can business finance help you with your cash flow?

Short-term business finance options can help with temporary cash flow problems so that you will always have the funds you need to pay all your business expenses on time.

Different business finance options and credit facilities

A range of different finance options are available to suit business growth and cash flow management needs, including:

Asset and equipment finance

Asset finance, also known as equipment finance, is a type of lump sum business loan used to purchase business assets, equipment and machinery.  These could be vehicles, trucks, trailers or heavy machinery such as excavators, yellow goods and other construction machinery.  Asset finance is often used to purchase manufacturing, packaging and processing equipment and can be used for nearly any equipment that provides an income for your business, creates an efficiency or serves a role in providing services or creating goods.  Because the loan is secured by the asset its financing rates are normally lower than unsecured loans.  Another feature of equipment finance is that there are lenders who specialise in different assets, business types and even provide finance to startups

Sale and leaseback finance

A sale and leaseback is the name given to a type of equipment finance that allows a business owner to cash out the equity they hold in their equipment, assets or machinery.  Once approved the equipment finance provider will take security over the asset in exchange for the funds provided.  The loan is then paid back over a typical equipment finance term.  This is a great option for business owners seeking to extend terms on an ATO payment plan when seeking a loan to pay out tax debt.  It can even be used on older equipment and machinery.

Business line of credit loan

A business line of credit allows you to access cash up to a pre-set credit limit when you need it. How does a line of credit work in regard to paying interest? You only pay interest on the amount you use, not the entire credit facility limit. The revolving credit line gives you ongoing access and allows you to draw down funds again once you’ve repaid the amount of credit used. You can withdraw funds or make repayments at any time, provided you don’t go over your approved limit.

Overdraft facility

A business overdraft is a revolving line of credit with a set limit.  Bank overdrafts are often secured by residential or commercial property and any amount used is charged an interest rate. There are also unsecured overdrafts available to business owners who don’t have property or don’t want to use property security.  Overdrafts are a great support to business as a cash flow solution allowing payments to be made for suppliers, wages, or any business expense without restriction.

Secured business loan

Secured business loans, also known as a term loan, can be used for a variety of purposes with either commercial or residential property as security.  A secured business loan could be used as a mortgage for commercial property purchases, working capital or other forms of business investment.  Some lenders accept low doc applications for secured loans — particularly when business owners are seeking a short-term property loan.

Unsecured Business Loans

Unsecured business loans are an excellent tool for business because of they can be approved and funded very fast compared to traditional loans.  Some providers can even approve and fund loans in the same day.  This speed gives a business owner great flexibility enabling a business owner to go after an opportunity or raise funds quickly if there is a bill that needs to be paid.

Fitout Finance

Fitout finance is a convenient way to finance a broad range of business fitout solutions.  Having arranged finance for the fit out of gyms, medical practices, retail shops, factory and warehouse solutions the finance could be for new premises or to upgrade your current business location.  With rates and terms similar to equipment finance, fit out finance pays for your new or upgraded premises with the cost paid back over time.

Invoice finance

Get paid on your unpaid invoices the day you write them!  Used to bring revenue recognition forward, invoice finance (also known as debtor finance or factoring) is a cash flow solution available to businesses billing on terms.  Invoice finance provides greatest benefits to those businesses dealing with irregular cash flow cycles or the challenge of expanding at a rapid rate.  An Invoice Finance facility allows you to claim up to 85% of your invoice value the day you write your invoices.  When your customer pays it clears the debt, minus interest and fees and the balance is transferred to your account the same day.  The more invoices you generate the greater access to credit you have available, up to your pre approved limit.

Trade and import finance

Trade and import finance are lines of credit used to pay for material supplies and in some cases invoiced costs like labour hire.  Used to extend supplier terms, Trade and Import Finance pays for business expenses and is paid back within 90 – 180 days.  The benefit of this is it allows a business greater flexibility through their cash cycle and can even be used to import machinery and assets that aren’t available in Australia.

Development finance

Bank and non-bank lenders alike provide finance for property development.  Banks tend to prefer larger developers whereas non-bank lenders provide solutions for boutique developers and builders with solutions for 2 on 1s, 3 on 1s and multi-unit developments.  Lenders providing development finance will seek to understand the developers experience, their chosen builders profile and that the numbers stack up on the development with an appropriate margin.  When seeking development finance it’s important to understand which lender will support the type of project your undertaking and the process that lender requires to gain approval.

Private Loans

Private loans refer to loans provided by non traditional lenders.  Typically first mortgages or second mortgages secured by property, they can also include caveat loans and might sometimes be referred to as solicitor’s loans.  Private Loans are essentially an asset loan secured by real property they provide flexibility as they’re available without generally providing full financials and are available to those with bad credit.

The right option for your business depends on your specific needs and goals. It’s best to contact a business finance specialist like us at darkhorsefinancial.com.au to find the right finance option for your business. We work for business clients, not lenders.

If you use business finance wisely, it can help you to grow your small business and manage your cash flow effectively, so you’ll always have the financial resources available to take on big opportunities and scale.