Cash flow is the lifeblood of SMEs, enabling them to meet day-to-day expenses, pursue growth opportunities, and navigate unforeseen challenges. To build a stable, long-term future, SMEs should explore effective strategies to maintain healthy cash flow. Strategic borrowing is a strategy that can help. By sourcing funding from alternative lenders, SMEs can invest in growth initiatives or boost their cash flow without sacrificing working capital. And for those SMEs looking for unsecured loans or different product offerings outside traditional banks, small business lenders can provide more suitable products, including some that don’t require personal assets to secure a loan.
In this article, we explain why strategic borrowing boosts cash flow for SMEs. From understanding the types of finance available to exploring each product's advantages, SMEs should feel empowered to leverage strategic borrowing to optimise their cash flow and unlock their business's full potential. Keep reading to learn more.
Consistently positive cash flow is critical to the financial success of SMEs. As an indication of a company's financial health, monitoring cash flow provides valuable insights into a business’s ability to meet its short-term obligations, invest in strategic initiatives, and weather unforeseen challenges. To optimise cash flow, SMEs should have systems and processes to monitor cash flow in real time and quickly identify adjustments for prudent commercial decision-making. These processes include cash flow forecasting to monitor receivables and payables, efficient inventory management, and diligent budgeting and forecasting. Leveraging borrowing with the lender can also help SMEs to boost cash flow and preserve working capital.
Apart from having better visibility over the business’s financial performance, there are strategic long-term benefits to maintaining healthy cash flow. It empowers SMEs to capitalise on growth opportunities quickly by expanding operations, investing in marketing and innovation, and pursuing strategic partnerships. Further, strong cash flow instils confidence in stakeholders, including business leaders, investors, lenders, and suppliers. This confidence fosters trust and, as a result, can facilitate faster access to capital, favourable credit terms, and partnerships that drive a competitive edge.
Borrowing money is a smart way for SMEs to access funds without jeopardising equity through capital raising or the burden of issuing debt. With the right product, SMEs should be able to access on-demand cash flow solutions that help them deliver their products and services efficiently while having the funds available to invest in new opportunities as they arise. For example, a business may establish a line of credit or invoice finance facility with an alternative lender to place bulk orders of specific inputs and enjoy a discount due to economies of scale. Similarly, if an SME is looking to have more control over its supply chain, it could use trade finance to invest in establishing the manufacturing capabilities for particular parts of its product or service delivery. Not only does this kind of investment protect against supply chain disruptions, but costs can be optimised too.
For services-based businesses, strategic borrowing can bridge cash flow gaps when a company is in a stage of rapid growth. For example, if a company grows quickly and needs to hire more skilled employees, it can access funding facilities to complete the recruitment and selection process, install additional desks and workspaces, and begin delivering new work. Throughout all stages of growth and change in an SME, cash flow forecasting is essential to ensure the company is growing at a rate that is at least equal to or higher than its interest rate, ensuring that the cost of capital is driving growth.
Small business lending, especially outside the traditional banks, offers a range of facilities. These facilities include:
The rate an SME will pay on their finance facility and funding limits will depend on several key factors, including years in operation, current balance sheet position, and whether the company’s or personal assets can be used to secure the loan. While many people consider SME finance from traditional channels such as banks the “safe” option, it often comes with the price of securing the loan with personal assets, such as the family home. This can help SMEs secure more debt. However, if the business fails, personal assets are at risk. In contrast, small business lenders offer products that are tailored to the unique needs of SMEs.
Accessing lending products, from invoice finance to a line of credit, can help SMEs to boost their cash flow and invest in growth without sacrificing working capital. Further, financing facilities should be as dynamic and nimble as SMEs. Strategic borrowing can help SMEs expand to new markets, bridge cash flow gaps, and diversify their capital structure.
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.
