Businesses rely on invoice financing, stock loans, supply chain finance, and other short term financing tools to help them keep cash flows stable in unstable business environments. Having access to these solutions is often key to a small business’ survival, and that of the people and businesses who depend on it. That does not mean, however, that alternative finance is limited to a purely reactive, financially stabilising role.

invoice finance, New Zealand

Used properly, businesses can use financing to invest in growth opportunities that wouldn’t otherwise be feasible, giving them the boost they need to establish themselves in a broader market, and to compete with larger businesses.

Boost capacity

Growing your business’ capacity without using financing support from a financial institution or investors of some sort is an incredibly slow process. Small businesses in particular often generate so little profit that this can almost halt growth entirely. For example, your business might have several major clients ready to sign on, but may not have the funds it needs to expand its capacity to serve those clients. While a larger business might easily have the financial bandwidth to hire and train a few new employees, provide workspace, and simply absorb their cost until the new client’s revenue paid off the investment, your small business needs to draw funds from another source.

Short term financing, particularly invoice financing and supply chain finance, are perfectly designed to help businesses build up that working capital in the near term. It allows them to make those necessary investments and cover their costs today against a future return that would otherwise be out of reach.

Break into new markets

Reaching out into new markets, both geographically and demographically, is a move that’s as necessary as it is unaffordable for many small business. While the advent of digital marketing has lowered marketing costs significantly over the last two decades, the time and resource investment is still very high for a small business with a tight budget.

Attracting attention in a new market means conducting marketing research, optimising product offerings, finding and building relationships with new distributors, and often paying for months worth of labour for marketing and sales efforts before you can reasonably expect to generate enough revenues to break even. The obvious solution for many entrepreneurs is to take out a business loan.

A regular business loan might make sense in theory, but your primary banking institution is unlikely to be willing to deal with a loan that’s sized for a small business, because their business model isn’t designed to work with relatively small loan amounts of under $1 million. To get a loan for under a million dollars, an alternative financial institution like Fifo Capital can accommodate you with a short term business loan as small as you need for your specific project.

Drive innovation and change

Entrepreneurs are typically full to the brim with innovative ideas, but don’t have the time or resources to realise them. A business can’t afford to try something new every week while remaining functional and productive, much less profitable. Making innovative changes means analysing new ideas, testing them, developing them, and eventually implementing them before they can finally begin to generate returns on investment.

The timeline for profitable success when conducting research and development is often uncertain, because great ideas or discoveries don’t tend to arrive on a schedule. Change management is also a finicky business, and can impact profitability in the near term that may need to be addressed. That uncertainty makes it particularly difficult to budget for, and businesses need flexible financing options to give them the bandwidth they need to see changes through without risking their business.

Used in combination with a business loan or invoice financing, supply chain financing is a great way to defer outgoing payments for up to several months while boosting working capital. This gives your business the time it needs to adjust timelines and finish implementing the innovative changes you need to make in order to remain competitive in your industry.

Growth related costs of all kinds are so difficult to tackle because they drain working capital against a payoff that often seems prohibitively far in the future. Many small businesses simply consolidate their revenues and try their best to operate conservatively in order to survive as long as possible. That, however, is just a slower way to arrive at a business’ ultimate failure.

Industries develop and evolve, and successful businesses are inherently those that grow and compete for leadership to help guide those changes. For entrepreneurs of all kinds, that means finding targeted solutions to manage your financial risks while driving growth in spite of the challenge.