How do you Fund your Business Growth from Internal Resources?
STEPHANIE CREASEY >
PartnerWed 31 July 2019
All businesses will need finance from the start to fund their growth. This can come from internal sources such as savings, revenue or cash released from the sale of other assets, the directors lending funds to the company or from surplus profits which are reinvested into the business.
Before deciding whether to use your own resources it is useful to consider the pros and cons to see if it suits your particular needs at the time. Stephanie Creasey, an Associate Solicitor in our corporate team, weighs up the advantages and disadvantages of internal funding.
One of the main advantages is that internal funding will often be a cheaper option as there are no bank and administration charges incurred. Business owners will need to have a good understanding of the financial health of their business before making funds available and typically the amount will be limited to what is available.
Generally if funds are available these can be used almost immediately without any conditions attached to them such as interest fees, arrangement charges or specific repayment terms to be met.
This means that the business can be flexible and can be in a position to make a decision and move quickly to secure any opportunities which are presented to it, potentially for a limited time, without needing to wait for approvals and authorities from third parties such as banks. Control also remains with the company as no third parties will take any stake in the business or be able to influence decisions in a particular way, nor is any security required which is more common where external funds are used.
However, using the company’s own funds for a significant investment project may mean that the company takes a sizeable risk on its continued success and if the project does not go as planned, it could have a serious impact on the company’s future and potentially lead to insolvency. Further internal debts can put a strain on businesses as, if the amount of debt is too high, this can have an impact on working capital which in turn could cause problems if further external funding is needed due to decreased liquidity.
Whichever funding option you choose for your business, you need to ensure you understand the implications for your business and seek appropriate advice from professional advisors.
We offer a range of services to support businesses, including in connection with corporate finance matters. What’s more, we have access to a network of local professionals to whom we can make introductions to provide help and guidance to you in your search for the right funding option.
For more information on the services we provide or to discuss how we can help you put in place the right documents to support the use of internal funds for growth, please contact me on Stephanie Creasey
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