Small businesses risk missing opportunities during the final quarter of the year by leaving funding decisions until seasonal demand is already placing pressure on their operations, according to Time Finance.
Ed Rimmer, chief executive of the independent SME lender, has urged businesses to take a more strategic approach to funding, particularly in sectors such as manufacturing, logistics, retail and trade services, where additional capacity is often required ahead of Christmas.
He argues that businesses which wait until they face immediate cash flow pressures may find themselves seeking finance when they should already have additional equipment, stock and staff in place.
The warning comes against a difficult economic backdrop, with research from UK Finance’s SME Finance Monitor showing that 42% of SMEs regard the economic climate as a major obstacle to their business.
Higher operating costs are cited as a barrier by 38%, while 35% identify taxation pressures. The research also found that 62% of SMEs were cautious about their future plans because of wider economic conditions.
PLANNING BEYOND CHRISTMAS
Rimmer believes that uncertainty is contributing to delayed investment decisions, potentially leaving businesses unable to respond fully when demand increases.
He argues that securing finance before the seasonal peak can allow SMEs to invest in machinery, delivery vehicles and other operational requirements without having to arrange funding at short notice.
The benefits could also extend beyond the Christmas trading period, with businesses able to use the additional capacity to retain customers and support activity during the traditionally quieter first quarter of the following year.
Rather than treating borrowing solely as a means of addressing short-term cash flow shortages, Rimmer advocates using structured finance to support longer-term investment and operational planning.
REFINANCING EXISTING ASSETS
One option highlighted by Time Finance is asset refinancing, which allows businesses to release capital tied up in machinery, plant equipment or commercial vehicles while continuing to use those assets.
For established manufacturing and trade businesses, this could provide an alternative source of working capital without requiring the disposal of equipment essential to day-to-day operations.
Funds released through refinancing could be used to increase stock levels, obtain additional delivery vehicles or improve warehouse facilities ahead of seasonal demand.
Rimmer argues that businesses should establish their funding requirements well before the final quarter rather than wait until additional capacity becomes essential.
He believes earlier financial planning, including consideration of existing assets that could be refinanced, can give SMEs more time to arrange suitable facilities and prepare for increased trading volumes.
The approach could also help businesses carry the benefits of stronger fourth-quarter trading into the new year, rather than emerging from the festive period with additional financial pressures.
