I was reading an article in the Independent by David Prosser saying that 'SMEs who fail to access external finance can expose themselves to just as much risk as firms which borrow too much.' Research has found that almost half of all SMEs now are a 'permanent non-borrower', meaning they are not currently using external finance, and have not done so in the past five years. It also means they have not applied or wanted to apply for finance over the past 12 months, and have no plans or desire to apply in the next three months. David Prosser makes a good point in saying 'businesses refusing to borrow for growth today risk being left behind by less risk-averse competitors.'
Borrowing for investment supported by a robust and well thought out business plan can give business a competitive edge. Recently we have raised finance for two clients, one for an acquisition in the south of the country which gave the business an increased critical mass in the market place, reduced costs through synergies and improved purchasing power with suppliers.
The other case involved borrowing to invest in new plant to enable the business to produce their own renewable energy, thereby becoming energy self sufficient and significantly reducing the overall energy costs for the business and improving margins.
Neither of these two businesses would have been able to make these significant strategic changes, if they hadn't borrowed the capital required.
Both the above examples demonstrate that borrowing can give a business what it needs to secure a competitive edge and growth for the future. A word of warning though; Any form of borrowing needs to be carefully planned and well thought out. Those businesses who are thinking of the future and who are prepared to borrow in order to get these should always ensure they seek out professional advice first.
