4 Ways a Lack of Finance Can Impact Your Business

According to the Bank of England, SMEs account for 60% of total employment and 50% of turnover of the UK private sector, unquestionably driving growth and providing vital employment. However, as an SME owner handling Your finances can be tricky and a lack of access to external business funding can make this even trickier.

At Portman, we know financial literacy is crucial for managing business finances effectively. This article will therefore highlight how a lack of external business capital can disparagingly stunt your business growth, hindering your ability to:

1. Expand your premises
2. Deal with unforeseen expenses
3. Invest in your service and promote your business
4. Investment in new technology and equipment

By highlighting these challenges, we aim to spotlight the crucial role external finance plays in business success- helping SMEs understand the financial opportunities available to them and ultimately utilise business funding effectively for their own business growth.

Why do businesses need finance?

Having adequate funds in place to survive and grow is crucial for any business. Customer demands are constantly evolving and the competitive landscape requires businesses to meet these new challenges head on by investing in innovation to boost productivity. Without the proper funds to adapt to the changing environment, a business “will be held back and eventually struggle to survive”. In fact, Manx Financial Group discovered almost 1/3 (31%) of SMEs say they have had to stop or pause an area of their business due to a lack of finance, particularly among small businesses in agriculture (63%), media (60%) and manufacturing (59%) and sectors.

A business’s ability to invest is directly affected by the amount of finance it has available. For SMEs whose source of revenue comes solely from one source, growth is considerably more restricted. A lack of income, perhaps due to seasonal fluctuations or an adverse effect of working within budget constraints, can mean there is not enough cash in bank to e.g. hire new employees for an expansion, or update crucial equipment to stay in line with competitors, preventing many from achieving their growth potential.

This is where external business funding such as small business loans or asset finance would come in. If an investment allows your business to capture an opportunity, boost revenue or unlock potential, then finance is worth considering.

How a lack of business finance impacts SMEs

Jo Morris, Head of Insight at Novuna Business Finance has stated “the ability to acquire new machinery or upgrade technology- importantly at the time it is needed- is vital to any small business’s growth and profitability. [A lack of finance will] stifle the future of an individual business”.

But how?  

1. Inability to expand your premises

As customer demand grows, a business will often scale up or even franchise out by purchasing a larger space. Alongside the funds to acquire or rent and refit a new building, this often requires growing your pool of skilled employees to manage increased demand, as well as acquiring more stock. However, without access to finance, you will be required to fund all of this out of pocket. If you don’t have adequate cash or a contingency fund, business expansion can become very tricky.

2. Difficulty dealing with unforeseen expenses

Today’s business environment is tumultuous and without external finance it may be a struggle to even keep on top of your cash flow. Many SMEs experience seasonal peaks and troughs, dips in sales due to economic uncertainty or supply chain issues that hit revenue.  Unforeseen circumstances and expenses have the potential to cause a big impact. Without the security of a contingency fund, you risk depleting personal cash reserves to invest in your business, potentially increasing your stress and making it harder to pay suppliers and other bills.

3. Invest in your service and promote your business

In a competitive market, investing in your business is essential for the success and growth of any business or product. 

Today’s digital landscape is ever changing, so small businesses should to ensure they are leveraging the latest high quality marketing tools such as social media, search engine optimisation (SEO), paid search to increase visibility, attract new customers and drive conversions. However, online presence is just one part of a business’s investment. 

It’s equally important to invest in skilled staff, training and development, quality stock, exceptional customer experience, and reliable services. Refurbishing your premises, expanding your offerings through diversification are also key to staying ahead. 

While these investments can be costly, external business funding can help cover these essential expenses- supporting your long-term goals without putting a strain on your cash flow or limiting your ability to handle practical day-to-day operations.

4. Inability to invest in new technology and equipment

To maintain industry competitiveness, it’s imperative businesses keep up with the latest technology and equipment to streamline operations, increase productivity and drive success.

However, this upgrade often requires capital. Not taking advantage of the changing and competitive economy due to insufficient funds can also cause your business’s growth to stagnate, as well as result in significantly reduced profit margin. A new fleet of vans, a finishing line, a CND machine, a catering kitchen, or a complete refurbishment. All expensive with the potential to drain the bank account, but all have the potential to unlock revenue opportunities and are perfectly financeable.

What Types of Finance Can You Get?

When it comes to small business funding, Portman provide a wide range of options to meet your needs. Whether you’re looking for loans, asset finance, or other financial products, we can help you navigate the process and find the best solutions tailored to your business.

We offer a range of financing options to help you achieve your business goals:

• Business Loans: Flexible loans to fund a variety of business needs. Borrow cash to support operations across different areas.
  
• Asset Finance: Facilitate the acquisition of essential equipment, with flexible lease or hire purchase agreements.
  
• Equipment Finance: Unlock valuable capital from your existing assets by using them as collateral for a loan.
  
• Government-Backed Finance: Take advantage of funding schemes supported by the government to help your business grow.

To increase your chances of securing the right funding, it’s essential to develop a clear and solid business plan and understand your financial needs and capabilities.

Portman have been helping SMEs access external finance since 2007

At Portman Finance Group, we’ve been supporting SMEs with external financing solutions since 2007, having arranged over £1.5bn in funding for SMEs to date.

While recent data from the Impact Investing Institute highlights that the success rate for SME applications for bank loans has dropped from 80% in 2018 to just 50% in the past year. Through Portman, you are more likely to receive an acceptance than through your bank. As one of the UK’s largest lenders and brokers, we have access beyond traditional banks and therefore can offer finance solutions that others may not. From our own book to our panel of over 60 specialised lenders, we will be able to provide you with the finance to support your business needs. Whether you have an excellent credit history or a more complex trading background, we can match you with financing that fits your unique needs. Why else should you use a broker? Learn more here. Or give us a call on 01604 761276 to enquire.

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• Managing Cashflow FAQs

FAQ Category

• Managing Cashflow FAQs

Managing Cashflow FAQs

How can I improve my accounts receivable process?

To improve accounts receivable, implement automated invoicing systems and set up regular payment reminders. Establishing clear payment terms and following up promptly on overdue invoices can also help ensure timely payments.

How can I prepare my business for seasonal cashflow fluctuations?

Prepare for seasonal fluctuations by analysing past sales data to forecast peak and slow periods. Build a financial buffer to cover lean times and adjust your staffing and inventory levels accordingly to match seasonal demand.

What are some common causes of cashflow problems in small businesses?

Common causes of cash flow problems include poor tracking of income and expenses, unexpected costs, late customer payments, and seasonal fluctuations. These issues can strain finances and disrupt business operations.

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