For SMEs at all stages of maturity, strategic decisions pave the path to growth and success. Among these decisions, leveraging debt emerges as a powerful tool for driving expansion. Leveraging debt, when executed strategically, can infuse a company with the necessary resources to seize opportunities, invest in innovation, and propel its market presence to new heights. By effectively managing debt, businesses gain the means to accelerate their growth trajectory, whether through capitalising on emerging markets and trends, developing transformative technologies, or scaling operations.
In this article, we discuss leveraging debt to fuel business growth, the benefits of borrowing for cash flow management, and how debt can provide an investment in your business’s expansion efforts. Keep reading to learn more.
There are many reasons your SME (Business?) may choose to use debt to drive growth. First, it allows your business to access a larger pool of capital without sacrificing your own cash flow and provides the money required to capitalise on opportunities that may otherwise be unattainable. These opportunities may include broadening your product and service offerings, expanding to new markets, and scaling your operations. Similarly, accessing debt can also provide your SME (business?) with the funds to invest in projects or assets that will generate a higher return than the interest rate on the debt.
Using debt to fund your business’s growth also ensures ownership stakes within the company remain unchanged. Unlike capital raising and other financing arrangements, debt finance doesn’t require shareholders to dilute their ownership, which helps everyone maintain ownership of the company while still accessing the capital required to grow. And with the interest on business loans typically tax-deductible, this can also reduce a company’s overall tax burden while diversifying the company’s capital structure.
Cash flow management is one of the most challenging parts of driving growth for SMEs. While your company may have a strong pipeline of services work or product sales orders, it doesn’t always mean you have the cash flow to deliver. Debt finance addresses this challenge by helping SMEs to bridge cash flow gaps and get the capital they need to grow, however, that trajectory looks. With a lump sum of capital available in a debt facility, your SME can use it for various things, from paying suppliers and subcontractors to sourcing inputs for product and service delivery.
To find a debt structure that works for the unique needs of your SME, you should work with a specialised business finance provider where the lending products available align with your company’s growth plans and financial needs. These needs may include a dynamic funding facility that grows with the business, flexibility in repayment terms, and nuanced credit assessment criteria that take into account your business’s performance as well as its assets to determine your suitability for a business loan.
Debt, whether it's debtor finance or a traditional business loan, allows SMEs to receive the funds they need to grow without sacrificing working capital or securing the debt with company assets instead of personal property (for applicable financial products). Once the funds are available, these can be used to achieve the company’s growth objectives.
Let’s consider an example: Using debt to expand to new markets.
Nutty Bars is an organic health food company that makes a range of nut bars, bliss balls and superfood powders. They are interested in expanding to the Asian market, where they anticipate net revenue could grow by 20 per cent due to consumer demand for healthy Australian food products. The company can secure a business loan with an interest rate of 7.5 per cent, meaning that if they secure their expected 20 per cent growth, they will return 12.5 per cent on their debt. Not only will it help Nutty Bars secure the capital they need to expand their manufacturing operations, but it will also help them complete a thorough and effective product launch in the region.
When it comes to managing your cash flow effectively and getting the resources you need to grow, using debt financing can help you achieve your goals and bridge cash flow gaps without sacrificing equity. And with the right funding provider to partner with you every step of the way, you’ll have the support your business needs to maximise the returns on its lending.
Getting the right funding mix to boost cash flow and grow starts with having the right broker. With finance facilities from $50,000 up to $2,000,000 (depending on the financial product), Moneytech makes accessing the cash flow required for growth simple and efficient. Whether your business is looking to release capital from customer invoices to cover regular expenses or you want a cash flow boost to fund your next growth phase, we can help. Contact us today, and one of our experts will be in touch to discuss your options.
This article is for information purposes only and does not constitute financial advice. You should speak to a qualified financial professional about your unique situation before making decisions about financial products.
