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How do I know if business finance loans are right for me?

How do I know if business finance loans are right for me?
Peter Beresford
Raising finance, Mentor
Find out more about Peter Beresford

In this article you’ll learn

  • How to identify whether you need a business finance loan
  • Key areas a loan can help your business

For a lot of business owners, the prospect of taking out a loan as well as the risks and responsibilities involved, is a daunting prospect, so how do business owners assess whether they’re ready and if they need to look at business finance loans? 

You may have a gut feeling that you need a speedy injection of capital to push your business forward by capitalising on a new opportunity or making sure your business delivers its full potential, especially following the decision to leave the EU. However, there are five key areas and indicators you need to be aware when assessing this important business decision.

Hand holding a pen over a business loan application form with glasses resting on the paperwork 

Inadequate cashflow

Cashflow is the life-blood of all business; many profitable businesses have failed or been seriously held back because they have been unable to pay their debts or honour commitments as they fall due. This can be particularly the case when a business is expanding quickly and sees more and more cash tied up in its trade debtors (payables) and stock. 

Tell-tale signs may be where you’re finding it increasingly difficult to keep the bank account in credit or within the overdraft facility or, far worse, the bank are returning items on your account. If this applies to you, you should start looking for business finance loans. 

Under-staffing

Many businesses find that their operations and service levels dip as business activity increases purely because they are under-resourced. This could manifest itself in such things as: late deliveries, unanswered communication, late issue of invoices or even you working excessively long hours which could, in turn, put pressure on your health or home life. 

Before taking on new employees a business needs to ensure that the return on investment stacks up. If so, business finance loans can help you to cover the additional salary and associated costs, including PAYE, NI, training & development. Check out our top tips for hiring staff here

Attractive man and woman looking over paperwork with their accountant 

Stock shortages

Hopefully your products are in great demand and the orders are flooding in. However, your customers will soon become disillusioned if your deliver dates slip or, worse, you’re completely out of stock and unable to fulfil orders at all. 

This may be an indication that you need to increase your inventory to satisfy the needs of your target market, and taking out business finance loans could help you fund a larger inventory. 

Speed of production/delivery

Customers have increasingly high expectations around speed of delivery and service levels. You need to ask whether your systems are good enough or may be holding your business back. Look at your operations, including fleet of vehicles, back-office systems, online presence etc. If any of these fall short then business finance loans can help you make improvements to your services, premises or processes. 

Inadequate marketing strategy

You may have the best products or services in the market but is your profile good enough?

Consider your website traffic, social media presence or footfall to see if you’re attracting the level of publicity and interest you require. You may need to invest in online and/or traditional marketing activity to increase your profile and maximise your opportunities. Take a look at our marketing techniques for business growth here.

Woman working at a computer using a calculator 

If you’ve identified that you may be ready to look for business finance loans then, ideally, you need to produce a business plan and forecasts. This will focus and refine your aims and objectives together with your overall business strategy and determine your exact funding requirements. A cash flow forecast, in particular, is a key document and, if accurately prepared, will determine how much funding you require.

To propel your business to the next level, or even arrest a declining position if you’re business has hit a hard time, you need to ensure that no key area is getting left behind. That’s where using business finance loans can make all the difference, helping you to expand your resources, improve your processes or just make yourself heard in a crowded marketplace.

If you're looking to grow your business, take a look at the different funding programmes you might be eligible for here, or use our Funding Finder tool to search for yourself.