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With the right type of borrowing you could pursue and invest in business opportunities that would otherwise pass you by. Here's how.

Whether your business is at its early stages or further down the line, you may need an injection of cash to help it grow. 

If your business doesn't have the money readily available, you don’t want to put your personal savings at risk or you need to borrow a substantial amount, borrowing can be an affordable option.

How borrowing could help your business grow

You can use business finance for almost any reason, but some of the most common are to:

• Hire more staff

• Buy new equipment

• Move to larger or new premises

• Buy raw materials

• Buy more stock

• Buy vehicles to use for your business

• Invest in marketing and sales

• Help with cash flow

• Pay for day-to-day running costs

• Pay for an unexpected cost 

• Pay for other business services

• Refinance debt to get a better deal

• Buy another business

The investment should be one that is likely to make you more money than the cost of the borrowing. The bigger the difference between these two figures the more worthwhile it will be.

Some of the benefits of borrowing will be harder to quantify than others. For example, having the latest equipment, boosting your credit rating by showing you can reliably pay off debt and having more flexibility in how and when you can spend money.

Read more: How to get a loan to purchase an existing business: a step-by-step guide.

Deciding how much to borrow

Although borrowing can help to increase the value of your business overall, it costs money and could put unnecessary pressure on your business. This is why it’s important to think carefully about what you need the money for and how much you need to borrow. 

If you borrow too little you could find yourself needing more within a short space of time and being unable to invest in what you need to. If you borrow too much you’ll be paying unnecessary interest costs or might struggle to make the repayments.

When to borrow for your business

Deciding when is the right time to borrow funds is dependent on your business needs and financial security.

You might feel like you’re at a stage when you want to do things to boost your business that wouldn’t be possible without extra funds but is your business strong enough to cope if things don’t work out as planned?

Consider the true value of the investment you want to make and look at the best and worst possible growth scenarios in the short, medium and long term so you can plan for the impact of both. 

Growing your business involves risk but you need to be reasonably confident that it will be worth it. You could also benefit from getting some independent advice.

When you come up with a plan for how you’re going to spend the money, you need to make sure it’s achievable and that you’ll be able to stick to it. If you end up using the money in other ways you won’t be able to properly put your plan into action. 

Borrowing to accelerate growth

Many companies borrow to take on more staff or move to bigger premises to increase productivity, or expand their operation into new business areas.

Staff can be one of the biggest costs of a business so work out the financial benefit of hiring new staff and whether this will offset the cost of both your borrowing and paying their salaries before you decide to do it. The same goes for borrowing to move to bigger premises. Do your research to make sure your expectations of the benefits are reasonable.

You should also consider the competition you’re up against in your sector and what you need to do to achieve growth at the stage your business is at – this might be different to when it was in its earlier stages. 

Don’t forget to factor in sales and marketing costs if that isn’t the key purpose of the investment.

Borrowing for an immediate return

If you have a specific business opportunity with the potential for an immediate profit, borrowing money to secure it could be worthwhile.

Work out how much you need to borrow and the cost, then weigh this against the potential profit your business could make. You need to be realistic about how long it will take to get the growth you’re aiming for to decide whether the investment is worth going ahead with.

Get the right finance for your business

If you think that borrowing is right for your business, compare your options to find the cheapest deal.

It’s also worth checking which type of business finance will best suit your needs, for example asset finance if you are buying new machinery or business equipment. 

The different options fall into two categories – debt finance, where you borrow money and repay it with interest, and equity finance, where you sell a share of your business to give the investor a return on their money.

Here are some of the main ways you can borrow for your business. Each one has its pros and cons.

You can read more about different ways to finance your business.

Check the latest business loan rates here