There are many different investment options for which business finance plays a central role. Although there is a spectrum of possibilities, there are five core investment pathways that can regulate cash flow and enhance growth. Here is a quick guide to choosing the right investment options for your business.
1) Asset/Equipment Acquisition
Growth depends upon productivity, and this is often linked to assets. Investing in faster or more efficient equipment can offer a real boost in a competitive market. Asset financing involves purchasing or leasing an asset, such as a vehicle or piece of machinery, without having to take out a cash loan. The finance is secured against the asset being acquired.
This investment strategy has the potential to deliver a very good return. Use this option if:
- Your business requires expensive equipment
- An asset shortage is preventing growth
- Improving technology improves your efficiencies
2) Building Inventory
If you have plenty of customers but not enough goods, inventory financing is an excellent option. It involves a revolving or short-term loan with which to build an inventory. The inventory acts as the asset against which the loan is secured.
This type of finance solution is designed to increase sales volumes, and to maintain regular cash flow. Consider inventory finance if you:
- Have to pay suppliers more quickly than you can sell the goods
- Need to stock up before a holiday season
- Are a wholesaler
- Experience seasonal fluctuations that impact cash flow.
3) Improving Efficiency
Supply chains can haemorrhage capital and are often major areas of inefficiency. Supply chain finance (SCF) - which aims to optimise working capital and improve liquidity - is a distinct area of finance.
SCF involves various software-based processes designed to optimise the links between buyer, seller, and financing institution. It can involve invoice financing (factoring) for quick release of capital to the supplier, whilst giving the buyer more breathing space regarding payment. SCF encourages collaboration and speeds up the flow of finance through the chain.
Consider SCF if you:
- Have complex supply chains (automotive, manufacturing, retail)
- Have global supply chains
- Are expanding your inventory
4) Improving Cashflow Or Liquidity
Maintaining cashflow and liquidity based upon sales alone can be problematic. Many financial solutions are available to help companies avoid venturing into their overdraft. Overdrafts are often unnecessarily expensive and rigid, and over-reliance can make acquiring long-term commercial loans more difficult.
Invoice financing, inventory refinancing, and asset refinancing are all reliable tactics. These unlock capital from different types of asset. Consider investing in this type of finance if you:
- Need to finance short-term growth
- Have seasonal sales fluctuations
- Are trying to build a good credit rating
- Have equipment paid for with equity still in them
5) Expansion, Business Acquisition Or Merger
When companies think about investment, big ideas often come to mind. Expansion, business acquisition, or mergers can make a radical difference to growth prospects. However, these things come at a cost. Long-term loans, commercial mortgages, and bridging finance are all designed with this type of investment in mind.
Long-term loans and commercial mortgages are asset-based secured loans that borrow the capital required to finance major investments.
Bridging loans are designed to cover urgent short-term financial requirements, such as covering the gap whilst a commercial mortgage is being organised.
Consider this strategy if:
- Your business is expanding
- Your business is changing
- Your business is established, and has gained the assets and credentials required to secure a long-term loan
- You need to act now to benefit from a situation
The Right Finance Decisions To Fuel Investment
Investment is one of the most exciting times for business owners. Having the best financial strategies in place is crucial. At Business Finance Solutions Ltd, we have the experience and expertise to offer advice about how you can make finance work for you. Call us today on 1345 50 50 8888 to arrange a free initial consultation.
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