Is now the right time to raise Debt Capital?

With the latest inflation figures revealing a drop that finally brings the UK in-line with the 2% Government target, there appears to be more positive chatter in the air that we are on the verge of a breakthrough for the economy.

Whisper it quietly perhaps, but while interest rates hold firm at 5.25%, there is renewed optimism that future interest rate cuts, hopefully the first of many from The Bank of England, are just around the corner.

And with it, the opportunity to kick-start growth in a stagnated economy.

So, as an SME business owner, is this now the right time to look at your growth plans and start mapping out how to raise the funds you need to grow?

Recently, The Bank of England, in collaboration with the Department for Business and Trade, published a report that showed that 20% of SMEs said they had underinvested in their business during the previous three years.

In fact, 70% of businesses said they planned to grow organically, with a gradual growth plan preferred to taking on debt.

This is perhaps seen as a less-risky strategy for more established SMEs with decent pipelines and low operating costs. As we recently posted, debt is still seen as ‘bad’ amongst many businesses.

The recent lack of funding options for SMEs has further compounded this view.

However, there is a risk of missing out.

Debt capital in the form of fixed-term business loans can super charge an SMEs growth strategy.

Let’s not forget, reinvesting your profits to cultivate organic growth can take time, leaving you in a position of vulnerability to evolving markets and missed opportunities offered by sector growth.

With most economists expecting to see a bounce back in the UK economy in Q3/Q4 2024, it may be time to consider injecting capital into your growth plans to keep up and exploit the (predicted) fast-start to economic growth.

Investing in Sector Growth Opportunities

If you have not yet invested time in your business growth plans, and have a healthy bank balance and the books are in order, it will be much easier to raise capital now then if you wait until you really need it, usually when cash flow is tight.

If raising debt capital is your preferred approach, get raising funds early as part of a long-term growth strategy.

With debt capital in place, businesses can invest in growth initiatives such as expanding product lines and entering new markets or building your workforce and hiring more talent.

You can also leverage debt to seize growth opportunities by acquiring competing or complimentary businesses, accelerating your expansion efforts and strengthen your competitive position in the market.

In all such cases, taking on debt will provide the necessary funds to fuel these strategic events without owners having to dilute ownership or relinquish control through equity share.

In the UK debt financing interest payments are considered a cost and so are tax deductible. This one feature of debt financing contributes to the fact that it is a more alluring method of financing than the usage of equity.

The amount of interest payments, for instance, shields that amount of revenue if your business' marginal tax rate is 19%. This can save a company money, which can be used to invest in other areas or cover operational expenses.

Generally speaking, this makes equity financing more expensive than debt financing because interest payments are tax deductible.

Make sure whatever your plan, that it is a long-term strategy. Continuous innovation is key to remaining competitive and seeing real growth.

Funding in uncertain times

When it comes to SMEs, there is no ‘one size fits all’. From the sole trader working alone on a market stall to the manufacturer with over 200 employees, the wants and needs of the entrepreneur vary considerably. Lenders must match each SME with the right finance.

At SME Capital, we know all businesses are not the same. So we provide bespoke, long-term growth capital funding solutions to UK businesses not one-size-fits all blanket loans. We exist because we truly believe we provide a better alternative with our custom-made funding solutions for UK businesses to help you grow and succeed.

It’s in our DNA.

We are experts in SME lending, so whatever the loan purpose, our goal is to become your long term funding partner, which is why each bespoke loan will be specially-designed for you.

We will work with you to make sure you are on track and the funding makes sense for your business, in your sector, at any given time.

We understand the importance of trusted relationships and have dedicated regional directors based across the UK who will take the time to understand your business, your unique needs specific to you and support you with your business loan application. We enhance our traditional underwriting with data analytics, including timely risk and trend analysis to put you in control of your future.

Whether you need financing for a refinance, succession planning, M&A, or growth and expansion, we give you the opportunity to thrive without asking you to give up control, equity, or personal assets.

SME Capital uses a cash flow-based approach to lending, offering a multiple of business profitability, specifically EBITDA, as opposed to a loan amount being directly tied to the value of specific assets. We can provide an economic solution to consolidate smaller lenders, or refinance expensive short-term loans, while providing additional working capital for the business.

With repayment terms ranging from 3 to 7 years and flexibility on repayment structures SME Capital is an effective, relationship-led refinance solution for qualifying businesses in any sector that have been trading more than 3 years with £250,000+ EBITDA.

About SME Capital

SME Capital was founded to support the growing number of SMEs who face difficulty or frustration in accessing capital through traditional methods. We understand the importance of real and trusted relationships in the SME lending market and have dedicated Regional Directors based across the UK.

By combining traditional lending expertise with the latest in data analytics, we are supporting established UK SMEs with their long-term objectives and business ambitions.

In a challenging economic environment is now the right time to raise Debt Capital?

Investing in Sector Growth Opportunities

Funding in uncertain times