When your business should use finance – and when it shouldn’t

When your business should use finance and when it shouldn't

A steady flow of cash is essential for every business, whether you’re an SME or a large corporate. Looking for funding away from your own investment and working capital can have benefits to both your short and long-term business success. Still, we know it’s not always an easy process to get started.

All businesses have had to contend with some major external challenges in the past couple of years, first with the pandemic and now rising prices. Is now the right time to explore financing options for your business? It’s never an easy decision – but at Hexa we want to make it simpler and easier for you to understand.

We can’t pretend there’s a one-size-fits-all answer here, as it depends on your business’s unique needs and challenges. Still, we can certainly give you an idea of when finance is a good idea. That’s what we’re doing today. Here are three circumstances when finance is worth considering, and three when it isn’t!

When you should use business finance

1.     To achieve an outlined long-term goal

Making serious improvements to your business often requires serious investment. Growing your business can be daunting, but as long as you’ve put a plan in place then financing isn’t something to be afraid of. You just have to have a clear idea of your objectives, and how the funding will help you achieve them.

At Hexa we always support customers in clarifying the purpose behind finance. It’s so important to understand it. Once you do it can really power your new ventures, whether you’re increasing your earning potential or efficiency with new equipment or increasing your reach to new markets.

2.     When a new asset will pay for itself

You’ll start to notice a common theme with these points. If your business has a clear plan in place for how finance will provide a tangible benefit to your business, it’s time to go for it. Asset finance is a great example of this.

Asset financing is a fantastic way for businesses to acquire equipment. It’s pretty straightforward. You may not have the capital to pay for an asset that could really add value. If it does add value, then it could pay for itself along with any financing costs. That’s when it can really work.

3.     Cash flow finance for a contingency

In a normal situation, we’d recommend business financing as a solution for your long-term business challenges. But with the current economic climate, especially moving into what is looking to be a challenging winter, a short-term cash-flow boost might be helpful to help cover operating costs.

Whether you need to cover rising overheads during your business’s quiet season or are just looking for a contingency if something doesn’t go to plan. It’s a valid reason to look for finance. At Hexa, we offer invoice finance that allows you to bridge the gap between raising an invoice and customers making payment and a range of term loans that can help bridge a gap. Still, you need to make sure the funding is solving problems, rather than just postponing them.


When you shouldn’t

1.     When you don’t have a clear plan – Don’t take a risk if you don’t know the reward

Remember our first point at the start of this blog? As a general rule, if you don’t have a clear long-term plan in place for how finance will benefit your business, it might be worth asking questions. Don’t take a risk if you don’t know the reward.

It’s important to undertake some financial management. You should know how much funding, allocated in the right place, could have a genuine positive impact on your business. Generally, finance should be a path to growth, rather than a last resort.

2.     When you haven’t made the right groundwork

Before making big steps like applying for finance, you need to get your housekeeping in order. Things like annual accounts are great, but funders will want to see that you can also manage the day-to-day.

You also need to take steps to ensure that your business accounts, your personal finances, and the finances of your fellow directors are all well documented and in good order. It shows that your team can be trusted to maintain a steady cashflow, and a documented credit history will show your dedication to financial commitments.

We’d recommend taking these steps before considering your options when it comes to finance.

3.     When you haven’t explored all your options

Often the funding that is most readily available isn’t always the right option. Not taking the right funding or the right amount of funding can be equally detrimental to your business so having a trusted partner to explain the different options if invaluable.

If you’re looking for impartial, expert advice on the options available to you, we’re here to help at Hexa. We’re finance specialists from Wales with particular expertise in supporting SMEs. If you’d like to find out more about what we can do to help your team, get in touch at 01633 374910.

Leave a Comment