When is the right time to seek debt funding for your business?
Martin Emmott, Fund Manager, Rosebud
Timing is everything when it comes to funding your business. Whether you’re launching a new product, expanding your market reach or looking to grow your team, debt financing can be a powerful tool when used strategically.
Debt funding is essentially borrowing an amount of money to support your business needs, through a loan, line of credit, or other financial product, with an agreement to repay it with interest over time.
As a business loan provider that has been supporting Lancashire businesses for over 30 years, we understand that taking on debt, in the current economic climate, is a big decision, and it should be a considered one. But we also know it can be the catalyst for unlocking ambition and growth. And we’ve witnessed many success stories from the businesses we’ve supported.
How do you know when it’s the right time to borrow?
The answer depends on your specific business needs and where you are in your journey. As we explained in our advice piece here, the starting point is your business plan. It is a good idea to have a clear plan for how the funds will be used to fuel growth or address a critical need.
When might debt funding be right for you?
- You have a clear growth opportunity: If you’ve identified a way to grow your business, then debt can be a smart way to move forward. The key is having a clear idea of your return on investment to make sure that you can deliver on that growth.
- You have a specific intention for the capital: This could include scaling up to meet customer demand, purchasing equipment or machinery to increase production capacity, or launching a new product line and needing funds for R&D, marketing and initial inventory.
- Your cash flow is stable: A healthy, steady cash flow is a strong indicator that your business is ready to take on debt. We assess if a business can comfortably make regular repayments. If you have recurring revenue and solid financial management, borrowing can help you grow.
- You want to invest without the need to share equity: With a loan, you can retain full ownership and control of your business, unlike equity financing where you give up a stake in return for investment from a third party or parties.
When is it not the right time to seek debt funding?
- You have inconsistent or declining revenue: Taking on debt should not be used to rescue your businesses. If your cash flow is unpredictable or shrinking, it’s risky to take on debt you may not be able to repay.
- You’re facing operational or economic uncertainty: Major changes, instability or an unclear strategy make it hard to forecast return on investment.
- You’re too early in your journey: If your business is at the very early stages or simply a genius idea without a go-to-market strategy, then you may not be at the stage to take on a loan. Instead, you should seek advice from business support services that can help you to evolve.
- You have not identified a clear use for the funds: Borrowing for borrowings sake without a robust plan often leads to poor results.
- You already have significant debt: If you’re already carrying significant debt, adding more may strain your business or hurt your credit.
How can Rosebud support you?
When timed right and aligned with a clear strategy, borrowing can be a smart way to grow and make your business plans a reality.
Rosebud can lend from £25k to £100k to ambitious early-stage and growing businesses in Lancashire, as well as offering co-funding opportunities and a range of advice and support services.
If you’re considering funding, take a step back, look at your financials, clarify your goals and ask whether now is the right time. If the answer is yes, then we’re here to help you take the next step.
Get in touch with the team today.
