When starting a business, having enough money is essential to get things up and running. As your business grows, financing can support expansion and help you reach your goals.

Entrepreneurs can benefit in many ways from business funding.

Below, we explore the key advantages of business financing.

As with any financial decision, it is important to seek independent advice to find the best financing options for your business.

Read our guide on how financing can strengthen your business.

Maintaining Working Capital

A business needs working capital to handle its daily operations.

This refers to the money left after accounting for the funds coming in and going out of your business.

At times, you may face cash flow challenges, such as late payments from customers or rising business costs.

In these situations, working capital finance can help. Some options include:

• Working capital loans – Short- or medium-term debt financing.
  
• Purchase order (PO) financing – A loan to pay suppliers for goods needed to complete customer orders.
  
• Invoice finance – Options include factoring, where a lender advances up to 90% of an invoice’s value, or invoice discounting, which involves paying a fee and discount charge for funding.
  
• Overdrafts – A credit line on your business bank account that allows you to withdraw more than your available balance.
  
• Asset finance – A loan that uses assets from your balance sheet as security.
  

Supporting Business Growth

Access to financing can help a business expand.

Entrepreneurs can use funding to invest in:

• Product development
  
• Marketing
  
• Hiring new employees
  
• Purchasing equipment
  
• Buying new premises
  
• Acquiring another business
  
• Expanding into a new market
  

Want to learn more? Read our guide on financing business growth.

Small and medium-sized businesses have several growth financing options, including:

• Business loans – Secured or unsecured loans repaid with interest over an agreed period.
  
• Crowdfunding – Businesses present their ideas on online platforms where investors and the public can contribute funds.
  
  • Equity crowdfunding involves offering shares in return for investment.
    
  • Reward crowdfunding offers non-financial rewards instead of shares.
    
• Angel investors – Wealthy individuals who invest in exchange for a minority stake in early-stage businesses. Investments usually range from £15,000 to £500,000 but can go up to £2 million with multiple investors.
  
• Venture capital – Investment from firms that back high-growth startups, often in multiple funding rounds, providing several million pounds.
  
• Start Up Loan – A government-backed personal loan of up to £25,000 to help entrepreneurs start or expand a business. Businesses trading for up to five years may be eligible for a second loan.
  

Strengthening Financial Stability

Financial stability is crucial for any business.

A business should be able to cover expenses without struggling to pay the next bill.

Good financial planning helps maintain stability, but unexpected challenges may require extra funding.

Short-term funding options, such as overdrafts, can help manage temporary cash flow gaps. Building a good relationship with financial institutions can also increase your chances of securing credit when needed.

Making loan repayments on time, providing accurate financial information, and maintaining open communication with lenders can improve your financial position.

Building Business Credit

Just like individuals, businesses benefit from having a strong credit score.

Lenders and investors use your credit score to decide whether to offer financing, and since credit information is publicly accessible, customers and suppliers may also check it.

A low credit score can be a red flag for suppliers, making them hesitant to sign contracts. Similarly, potential customers might avoid doing business with a company that appears financially unstable.

A strong credit score can help businesses access better financing options with lower interest rates and favorable terms.

Using financing responsibly can help small and medium-sized business owners build a solid credit history.

Paying off loans and bills on time can improve your credit score, making it easier to secure future funding. On the other hand, a poor credit rating could limit your ability to obtain the financing needed for business growth.

Attracting Investors and Partners

A strong financial foundation makes your business more attractive to potential investors and partners.

Your financial information should be a key part of your business plan. Investors want to see a well-thought-out financial strategy before committing to funding your business.

Demonstrating that you have successfully secured financing can help build confidence in your business.

In addition to your financial statements, your business plan should include:

• A cash flow forecast
  
• A profit and loss statement
  
• A balance sheet
  

When presenting to investors or partners, your pitch should include key financial details, including any financing you have secured.

A well-prepared pitch deck should be clear, engaging, and designed to spark interest in your company. Investors and partners need to see both your current financial position and your potential for future growth.