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When you place money into your company from your own finances it’s officially recorded in your Director’s Loan Account (DLA). This account also records loans that are made from the company to its directors.
Putting your own money into the business may be beneficial in some circumstances, so why might you want to do so and when is it not advisable?
Making a financial investment in your company conveys your belief in the business and can improve goodwill with stakeholders, such as suppliers and employees, and also your customers.
It can help the business to attract third-party investment if that’s what you’re looking for, and also encourages responsible financial management as some of the money at stake is your own.
You might also be tempted to put your own money into the business if it’s experiencing cash flow problems. Although this is a quick way to improve cash flow, it isn’t typically the best option as it can lead to you losing this money if your business declines further.
If the company’s financial situation doesn’t improve and the business has to be liquidated, you won’t be able to access the funds you invested as they’ll need to be used to repay your creditors.
There are better ways to manage poor cash flow rather than risk your own financial stability, and with so many alternative forms of funding now available to businesses, it’s advisable to investigate these first.
A wide range of finance solutions offer an alternative to investing your own money in the business and help you avoid a scenario where your personal money is lost. Depending on your type of business, these are just two options that could help.
Invoice finance
Factoring and invoice discounting invoice discounting make use of the value locked within your unpaid invoices. Rather than waiting for 30 days or more to receive payment, you can access around 90 per cent of each invoice straight away.
This flexible funding method tops up your working capital throughout each month and provides the ongoing financial support that many businesses need to grow strategically with confidence.
Supply chain finance
Supply chain funding helps businesses that operate with complex supply chains or that have to manage long payment cycles, such as those in the construction industry. You don’t have to provide security for the funding and can use it at the same time as other financing options.
Supply chain finance is a short-term arrangement that reduces supply chain disruption. It also offers benefits to larger companies in the supply chain as they can benefit from an extended payment term.
For more information on alternatives to putting your own money into your company, please get in touch with UK Business Finance. We’re commercial finance brokers with experience in all industries and offer our services free of charge.
We work across a wide range of sectors throughout the UK, providing specialist advice to each sector.
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