As a business, efficient management of finances is vital to ensuring ongoing success. When there is a delay in receivables, or when larger expenditure is required, many businesses turn to borrowing options to see them through.

However, keeping control of business borrowing is vital to survival. If you lose sight of your debt, you can fall into a downward spiral that can be potentially dangerous for the health of your finances and may ultimately see your business fail. Borrowing for investment is healthy, borrowing to finance debt is not.

If your business has borrowed money for investment, you want to make sure that money goes as far as possible and provides a good return. Therefore it is important to identify areas where you can reduce and streamline costs and increase revenue. By managing your borrowing more efficiently you can improve your business’ finance and, importantly, help it to grow.

What is business borrowing?

Borrowing itself can come in many forms, and is much more widespread than just a simple bank loan. For example, even taking advantage of extended payment terms from a supplier is a form of borrowing as it needs to be paid back within a certain period of time.

Other types of borrowing could include:

•       Bank loans - either secured or unsecured.

•       Finance for goods or services offered via a specialist finance company.

•       Friends and family loans.

•       Government or small enterprise loans.

In these troubling financial times, it is almost impossible to run a successful business without some form of borrowing taking place. Putting borrowed funds to the very best use possible is key for any business, as is finding the most cost-effective way to repay the debt.

Businesses often need to look beyond the obvious methods of borrowing and find new ways to both borrow money and reduce outgoings. For instance, when borrowing, you could look to release equity or consider peer-to-peer lending. It’s also a good idea to find creative ways of cutting back costs, for example negotiating with suppliers and even your landlord.

Our advice at Hudson Weir is:

1. Releasing equity

Selling a stake in your business is an effective, yet often overlooked, method of raising cash. It doesn’t mean that you will lose control of the business or give up ownership, but releasing the funds may help you grow as a business, allowing investment into areas that will ultimately help expand and increase the value of your company.

2.  Alternative methods of finance

There are other ways of raising finance outside of the traditional bank loan. Asset-based lending or invoice factoring can be helpful ways to release funds and gain a cash injection. Peer-to-peer lending has also gained momentum and popularity and gives business owners a way of raising funds on their own terms. Platforms like Funding Circle also allow SMEs access to loans and funding from a marketplace of investors - and the process is quick and simple.

3.  Talking to your suppliers

Many businesses buy stock, whether that's parts they need, maintenance equipment, or whatever it is that keeps their business going, in bulk but often aren’t brave enough to ask for discounts. Even if the price your supplier charges looks competitive, never be afraid to ask if they can do better. Alternatively, if you have a large inventory of stock, but are still receiving goods from suppliers, talk to them about putting a halt on orders for a small period of time.

4. Looking into your lease

The majority of small businesses need to rent space to work from in the early days. The terms of your lease may not have meant much more to you than the monthly payment and the amount of space available. But perhaps you are paying for more space than you realistically need? Consult with your landlord to see if you could downsize or move into a smaller unit with a lower monthly rental payment. Do not be afraid to negotiate with your landlord as they’re unlikely to want a vacant property - they may accept a reduced offer on the rent.

5. Keeping on top of your payments

As obvious as it sounds, this is the difference between successfully financing your business in order to see it grow and becoming entrenched in a level of borrowing you can no longer afford to honour. Once you have found ways to keep your outgoings to a minimum during lean times, you must make sure that your monthly repayments are a priority.

Clever and concise payment systems are also an easy way to ensure your repayments are always made on time. Late or missed payments can accrue charges which can spiral out of control quickly if you don’t keep on top of them.

Even when times are lean, make your borrowing repayment strategy a priority to avoid late payment charges, poor credit rating and, as a worst-case scenario, the failure of your business.