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  Sometimes, you won’t have enough capital to fund your business’s operations. When such moments come, you’ll have to evaluate your financing options. One path you can take is external financing; to seek funding from external sources like banks, digital lenders, and other financial institutions. But it’s not always clear when to do this.
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Understanding when it’s the right time to seek outside capital can be the difference between thriving and stalling. Given this fact, here are 6 signs that your business may need external financing:

Opportunities for Rapid Growth

If there’s a clear opportunity to expand your business, be it a new market segment, geographic region, or product line, but you don’t have the necessary capital, funding from an external source can help you seize the moment. The revenues you’ll get from playing in more markets or serving more customers can help you pay off whatever debt the financing causes you to accrue. With insufficient funds, you might miss out on growth opportunities that could transform your business.

Equipment and Infrastructure Needs

Your equipment may become outdated or insufficient for your business’s growing demands. However, upgrading or adding new equipment can be expensive. If this equipment is essential to maintain quality and service, external financing might be your solution. The same is true for acquiring, mending or replacing vital infrastructure in and around your office premises or workstation.

Cash Flow Issues

One of the most common challenges businesses face is uneven cash flow. Even profitable businesses can struggle if they’re waiting too long to get paid or if they have significant, unpredictable expenses. While they tweak their collections processes to speed up the cash flow into their business, they can also seek funding to keep things running. External financing can provide the working capital to bridge the existing cash insufficiency and ensure smooth operations.
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Inventory Expansion

Product-based businesses typically need to expand their inventory during high-demand seasons. And if they cannot cater to climbing demands, they could leave their customers dissatisfied and searching for another outlet. If you foresee a spike in demand but lack the funds to increase your inventory, external funding can ensure you’re well-stocked and can meet customer needs.

Debt Refinancing

If your business has accumulated high-interest debts, refinancing them with a lower-interest loan will save you a significant cost in the long run. External financing options, such as business loans, can help you consolidate and manage existing debts more efficiently.

Talent Acquisition and Training

As your business grows, you may need to hire more staff or invest in training current staff to acquire new skills. This can be a substantial expense, especially if you’re looking for specialized talent. Recruiting and maintaining competent staff may cost your business more than you can afford. External financing can assist you in getting the right people on board without draining your reserves.
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Final Words

Timely external financing, whether it’s for seizing new opportunities or addressing current challenges, can pave the way for success. Just weigh the costs and benefits and consult a financial advisor to make the best decision for your business’s unique needs and circumstances. Featured Image Source: Complete Controller
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This article was first published on 12th October 2023


Ikenna Nwachukwu holds a bachelor's degree in Economics from the University of Nigeria, Nsukka. He loves to look at the world through multiple lenses- economic, political, religious and philosophical- and to write about what he observes in a witty, yet reflective style.

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