Grow, Accelerate and Expand: How CapEx Finance Can Fuel SMEs

In Q1 2024 the UK government reported that turnover for UK SMEs was 2.4trillion in 2023, 53% of the total turnover of all private businesses. So it is no exaggeration to state that the health and vitality of small and medium enterprises is critical to the success of the UK economy. Especially in light of the recent budget announcement by Rachel Reeves, the UK’s first female Chancellor.

However, in September 2024, PYMNTS, a global data firm, estimated that 60% of small businesses actually struggle with cash flow management. So in an era where SMEs are having to confront increasing commercial challenges and the increasing threat of domestic and international competition, it is very concerning to read such insights as a founder, entrepreneur or finance director. Especially as financial instability for SMEs often means they may needlessly be flirting with productivity disruption which could impact day-to-day operations as well as tomorrow’s path to growth.

Considering all the options

Understandably when facing financial bottlenecks, firms often turn to corporate finance as a way to meet urgent business needs but also to overcome short-term commercial pressures. Even well-established companies and successful entrepreneurs seek to enhance their capital positions and make them more effective. Leveraging debt to their advantage. So rather than being seen as a drain on company resources or an undesirable last resort often corporate finance is actually a growth enabler. Helping many companies successfully navigate cash flow challenges, capture short-term opportunities and lead to a strengthening of their balance sheets. 

One specific SME finance product within the broad suite of corporate finance options is a CapEx Term Loan. CapEx – or Capital Expenditure – Term Loans are unsecured financial loans designed to help SMEs fund large and high-value capital expenditure projects via the purchase of tangible assets. The purpose of CapEx finance is to provide fast, frictionless funding to fuel growth. Meaning it is often an ideal solution for businesses purchasing significant equipment with asset longevity.

This type of finance is typically used for the payment of goods or services that are capitalised on a firm’s balance sheet, rather than expensed on the income statement. For example, the purchase of land and high value vehicles, buildings or heavy machinery. Another common example of its use is for investment in large scale offices and infrastructure. It is also favoured by those operating in construction, engineering and logistical industries who require new and improved business-critical equipment to accelerate production. 

Fuelling business growth today and tomorrow

So it’s important to consider that CapEx finance is a solution designed to help firms source capital and typically to expedite growth ambitions. Given its inbuilt breadth it benefits from a wide variety of potential use cases across a wider range of sectors. Here are three to consider;

Industry: Construction

In this example the firm, a prominent local construction business in the north of England needed additional, high value mechanical parts to repair business critical machinery. They borrowed £100,000 to acquire the parts, repair the machinery and increase revenue by magnifying the machinery’s outcome. Also avoiding a breakdown that could have jeopardised business continuity and delivery to customers.#

Industry: Engineering

In this instance, following an audit of process efficiencies, a privately owned engineering company sought a loan to support the acquisition of newer, more capable machinery in order to increase productivity.

The business had identified the required purchase was overseas, but with cash flow management concerns they did not want to commit to the full payment in one go. However, in this instance CapEx funding meant the purchase could be made in full, whilst also providing a buffering period to manage cash flow and help spread the cost of repayment over 18 months.   

Industry: Logistics

And finally, after a period of low investment, a national logistics business was suffering from restricted expansion. To overcome this they needed funding to purchase new soft asset equipment for the acceleration of their service station to fuel growth.

Due to the large scale of the operation, obtaining a large CapEx loan enabled the business to invest in key systems for long-term revenue growth, that otherwise would have been out of reach for many years to come.

In each instance the funding unlocked new opportunities for the business that could have been lost or significantly delayed, instead granting it the necessary investment to reach its ambitions.

How do CapEx Term Loans work?

Once obtained, the flexible nature of a CapEx loan enables clients to spread the cost across 1 to 6 years[JD1]  and can benefit from fixed or variable rates, no early repayment penalties and minimal arrangement fees[JD2] . This form of finance is also typified by quick decisions, with often clients then receiving funds the same day. It’s also important to remember however that 3 years of trading evidence is required.

Leveraging CapEx finance to your advantage

A significant benefit of CapEx finance is that it preserves working capital whilst acquiring essential assets, without using day-to-day reserves. It’s also a way for businesses to manage income and outcomes effectively by fixing payments across the term. However, it’s important to also note that whilst all corporate finance loans help businesses to grow, they also increase a company’s liabilities. To fully understand how your business may be impacted by business finance, the SME finance team at Enness Global are on hand to assist and discuss your specific situation.

Let corporate finance help your business thrive

So in summary a CapEx loan is an ideal funding solution for businesses exploring how best to finance significant investment purchases. With the recent acquisition of a new CapEx funding line, Enness Global are even better positioned to be able to access funding tailored to its client’s needs. Its expert team of corporate finance advisers have been brokering high value SME finance for many years, successfully helping businesses to leverage their existing capital to thrive. Helping them acquire, upgrade and maintain physical assets that are fundamental to operations and continue to contribute to the UKs vital SME sector.

To explore CapEx finance, as well as the rest of our corporate finance options, get in touch with Jack Dowling, one of our leading corporate finance associates.