3 Purposes of Small Business Funding 

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If you’re reading this, you probably already know you need funding – the tricky part is figuring out what kind of funding you need. This article unpacks three purposes of SME funding because if you know the purpose of the funding, it will be that much easier to choose a type of funding. 

1. To Bridge the Gap Between Payouts 

Bridging finance serves as a short-term funding solution to “bridge” a gap to a later expected source of funding. For example, if there is a sale of a property concluding in a few months, a bridging loan can provide some short-term cashflow which is then settled when the property sale goes through. 

Another example is when an investor is investing in a business in 6 to 12 months, but some funds are immediately required to operate or grow the business. A bridging loan, which could be secured by some assets held by the business, will provide the business with some immediate cash flow. This can be fully settled when the investment happens. 

2. To Cover Day to Day Expenses 

Working capital loans provide businesses with the necessary funds to cover day-to-day operating expenses, such as salaries, buying stock, and paying for overheads. Because often a business’s income flows are not evenly spread, working capital finance assist in covering expenses in times when income levels may not be as high. 

Working capital is also essential to help a business grow. When a business expands, the increased costs usually come before the increased income. The irony in business is that you need money to make money. For example, a business needs cash to deliver bigger orders with new clients to issue bigger invoices. 

3. To Fund Acquisitions 

Acquisition finance refers to loans that are used to fund the acquisition of another business or assets that will enable a business to increase its ability to generate income.  For acquisition finance to work, a financier would need to be provided with enough security to lend against. This is often made up of existing assets owned by the borrower. 

Property is commonly used as the security for acquisition finance. This is why it may be wise to own the property your business operates from instead of renting it. This is one of the pros of buying vs renting your business property.

Where can I find funding for my business? 

Geddes Capital offers a suite of SME funding services. Each one is tailored to suit the business at hand and ensure maximum growth for its future. If you’re feeling unsure about which funding option would suit your business best, our team is on call to help you decide on the purpose and best solution for your funding.

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