Running a business is a long game that requires flexibility, adaptability, and capital. To keep it moving in the right direction is an ongoing commitment. Just as a business has gathered the funds to get off its feet or has started to make a profit, there comes occasions when extra funding is needed.
According to Trevor Gosling, CEO of SME funder, Lulalend, access to funding is imperative for a business to scale.
“It goes without saying that access to funding is vital for any small businesses. Particularly funding that enables an SME to keep up with industry changes, challenges and requirements.”
With this in mind, here are five specific examples of how fast and easy access to business funding can come to the aid of SMEs:
Research and development
Gosling explains that while not every business may need research and development in the early stages, every business needs to stay relevant and innovative. “SMEs have to keep up with unexpected challenges and competitors with better resources.
“On the other hand, many business owners still rely on thorough research to get ahead of the competition, often leading to having to finance the process. Ultimately, research and development are necessary for accelerating innovation and sustaining relevance, and it requires funding.”
Fast access to funding helps secure cash flow
The money that moves in and out of a business is important. For SMEs, any sudden changes can impact the business negatively. Which is why positive cash flow is so important. If it dries up it’s difficult to recover and this inevitably affects all aspects of a business.
Anything from seasonal slowdowns or recessions can strike at any time and it’s important to be prepared. “With fast access to the right funding you’ll be able to keep a positive cash flow should problems arise,” says Gosling.
Good liquidity helps SMEs trade through turbulent times
Gosling recommends that a business should have anywhere from a month to six months of cash on hand in case of emergencies.
“SMEs generally don’t have big cash reserves to fall back on, so when sales drop, they need a safety net to meet day to day operating costs. Liquidity requires having accessible funds and together with cash flow, it’s crucial to the survival of small businesses.
“Keeping a close eye on liquidity allows business owners to make smart decisions about their finances and a healthy ratio helps creditors determine their creditworthiness. SMEs need to track the financial health of their businesses and measuring liquidity helps to strike the right balance.
“You can look to financing companies to secure additional funding when the chips are down. This can afford you the flexibility to get through unprecedented cash flow crunches and buy you time to improve or rebuild your usual ebb and flow,” states Gosling
Funds on tap allow businesses to respond quickly to growth opportunities
Gosling believes that a new, recovering, or growing business needs capital to fund expansion strategies. When a business begins to grow, new locations, products, equipment, additional marketing or employees are likely to be required.
Consider businesses in the construction industry for instance, where upfront investment may be necessary to fund projects. These activities add to the existing costs and will need funding.
“At this point profits may be slim and whatever the stage your business is in, outside financing might be an important driver of success to reach those new levels of growth and business development.”
From fires to floods, natural disasters and as recently experienced in South Africa, destructive protests, and looting, or even staff injuries. Businesses must stay prepared. While insurance might cover some events, premiums still need to be paid and cash for salaries still needs to be available during repairs.
Even for less disastrous incidents, such as malfunctioning machinery, funding can come in handy.
“Funding allows businesses to cope with adversity and plan ahead. In today’s rapidly evolving financial services industry, it’s good to know the options you can rely on,” concludes Gosling.