Why Credit Holds the Key for UK Start-Up Success

By Rori Cadavieco, General Manager EMEA, Jeeves

Despite its ubiquity, credit is still divisive and this needs to change. It is a financial instrument at the heart of modern payments, powering consumer spending and business growth. While for many, it provides an important lifeline for those one-off, unforeseen costs.

Its attachment to the 2008 financial crash and the ‘credit crunch’ has perpetuated outdated notions that owning a credit card, or relying upon credit, will automatically lead to spiralling debt and over indulgence. Growing up, many are taught to avoid credit unless absolutely necessary – a lesson often accompanied by newspaper headlines containing figures of vast debt or dependence on cards.

On a personal level, some of these statements might ring true, and there’s no doubt that financial literacy is as important as ever in managing credit, but when it comes to growing a company, credit takes on a very different utility. For startup leaders and entrepreneurs, it is an essential component of the business toolkit, and during today’s economic turbulence, can support sustainable growth and business management.

Using credit to build a resilient foundation

Although fast-growth is a term often casually thrown around in the startup community, founders actually face a number of challenges in maintaining financial momentum. This can include waiting on merchant services to transfer customers’ payments to their account, having to wait to place new stock orders until after customers’ payments have cleared, or paying unexpected bills while awaiting incoming payments. It’s a constant source of frustration for startups, impacting financial and strategic planning, and damaging business continuity.

It’s here that credit can remove these headaches and support near-instant access to cashflow. Take, as an example, a large retailer that suddenly places a big order with a startup, but can only pay upon receipt of the stock. Many founders might find that while they have the expertise to fulfil the order, they do not have the working capital to pay for the raw materials or expedited production.

Credit can act as a bridge until the goods are paid for, enabling short-term investments in stock, materials, marketing or logistics and allowing leaders to close new customers. Jeeves Growth, for instance, empowers founders with near-instant access to working capital and credit, without the hassle of liaising with banks or other loan providers. This means that businesses can benefit from a cashflow injection and in the above scenario, peace-of-mind that they can afford to wait for retailer’s payment to clear.

Enhancing your existing financial tools

Prepaid cards have become a key financial tool for startups. In many ways, they enable business leaders to closely monitor expenses and ensure spend is sustainable. They’ve grown so much in popularity that the card market is expected to hit $5.5trillion by the end of 2028. However, in today’s market volatility, business cashflow and expenditure has never been more unpredictable, and for leaders, prepaid debit cards alone cannot offer the flexibility for accurate forecasting.

Credit, on the other hand, is built to deliver flexibility and is suited to a form of ‘just-in-time’ financing. Many startups will be familiar with the scenario of the ‘payroll deadline’, whereby leaders are waiting on invoices to settle and late payments to come through before they can be confident that the business has the funds to pay its employees. Unlike pre-paid card providers which cannot advance funding to businesses, credit lines as high as £50k can be granted within 24 hours, through non-dilutive funding options like Jeeves Growth. This means that startups can access capital on-demand, without warrants, covenants or personal guarantees, and ensures they do not need to choose between expansion or paying essential bills, be it payroll, rent or rates.

Reaping the benefits of expense management

As startups scale, many employees will use prepaid company cards to make purchases on behalf of the business but the existing process of tracking and managing spend is outdated. Employees with cards will often find they need to request top-ups and then wait for approval, usually during inconvenient times such as before a meeting with a lead or activating a lead-gen campaign in a new market.

For the finance team, it’s an equally frustrating process where they must manually action employee requests, and manage the approvals of multiple cards at once. This is notwithstanding the fact that prepaid cards for several employees can be expensive. Although providers don’t charge for transferring money between bank accounts and cards, there’s often withdrawal fees, FX costs and monthly charges to navigate.

By shifting to credit, startups can access services which set individual monthly limits per employee, and raise or lower those limits at a moment’s notice. As it’s backed by a credit line, employees do not need to top-up funds or wait for approval on strategic business decisions, like activating a new supplier. But beyond this, credit in the form of virtual cards allows startups to have complete visibility and control over different expense streams in real-time. This means they can identify opportunities to streamline costs and reallocate spending to more timely or strategic business needs.

Boosting company flexibility and resilience

It’s time that founders leave their preconceptions of credit behind and embrace its flexibility and ability to scale their business. Today, it is an essential component of the business toolkit, addressing challenges associated with flexible, on-demand finance, balancing cashflow, and improving management of employee expenses for more accurate forecasting. Viewed as a springboard to expansion and growth, credit must be a consideration for ambitious leaders today.