How to raise growth finance

There are lots of things you could do to grow your business, and funding is one popular way to give your firm a boost. But how can you raise growth finance, and what can you use growth finance for? Funding Options CEO, Conrad Ford writes|There are lots of things you could do to grow your business, and funding is one popular way to give your firm a boost. But how can you raise growth finance, and what can you use growth finance for? Funding Options CEO, Conrad Ford writes

The first step towards picking the right growth finance is knowing what your key drivers are — in other words, what do you want to achieve? This informs how you invest the funds, and how you predict and forecast revenue growth.

Every business is different, so the right thing to spend growth finance on will vary significantly depending on what your business does. The type of finance you’re able to raise also depends on your business profile.

Overall, understanding your numbers, growth plans, and trajectory is key to successfully raising and using growth finance — let’s take a look at how to do it.

Increase revenues

This is the most obvious outcome that business owners will hope for when they take out a business loan. Finance can be used to invest in any area of your business, so you can increase turnover and thrive. But to raise and use finance most effectively, you’ll need to have a good understanding of your business, your market and what your position looks like.

With this insight, you’ll be able to draw up a plan of how you can gain more contracts or purchase orders — perhaps that means expanding into a new market area, or doubling down on one of your existing income streams.

In turn, this information can be presented to lenders when you ask for funding, to prove that you have a strong understanding of your objectives and figures.

For example, if you’re successfully selling to one sector, maybe you want funding to invest in going after a similar industry. For this type of endeavour, an unsecured growth loan could be a good fit, to provide you with the mid-term working capital you need for various business purposes.

On the other hand, if you’re already doing well in one sector then maybe the simplest path to increasing revenue is ramping up your efforts there. Invoice finance could be a good fit on this front, to speed up your payment terms so you can get on with the next job — and things can snowball quickly when your cashflow isn’t restricted.

Finance can also be used less directly, to reinvest in your product or service. That could mean upgrading your CRM system to serve your customers better, or hiring new staff with expertise in a new area that will improve your offering. This is the sort of longer-term project where a larger growth loan could be a good fit — but you’ll need to demonstrate good financials to raise it in the first place.

Purchase a new asset

‘Asset’ can mean a lot of things in business finance. Perhaps you want to purchase a commercial property, to keep trading from the same premises while reducing overheads in the long-term. Or maybe your business relies on a key piece of equipment, or a vehicle like a van.

Whatever it is, business funding offers a variety of solutions. If you simply want to acquire some new equipment or vehicles, asset finance is a broad category with a variety of options falling under that umbrella, including leases and hire purchase agreements. These products are available to a huge range of sectors — whether it’s ovens for a restaurant or diggers for a construction site.

Depending on what you’ve got, your business assets can also help you get finance in the first place. This is known as an asset refinance — it effectively uses the asset as security for a loan. If the asset is valuable, it can release significant funds for growth.

There are various asset finance providers set up to help, whether you have or need individual items, larger ranges of items, or something as valuable as a commercial property.

A commercial mortgage could help you to buy the premises you’re currently operating from, or perhaps move into a larger space to grow your team. There is even finance available for experienced property developers looking to buy properties at auction.

While asset finance isn’t naturally thought of as ‘growth finance’, my experience with Funding Options shows it really can be. For example, a recent customer of ours is an online retailer with a large warehouse space and good existing relationships with their suppliers — they wanted funding to buy warehouse racking equipment, which allows them to carry a larger range and in turn offer the best variety of products in their sector.

The point is, although the finance itself might be for a specific item, it will indirectly have an impact on your business as a whole, and could be the key to unlocking new growth. For our client, warehouse racking proved crucial, and will have an impact on the quality of their offering and their relationships with suppliers too.

Equity investment

Equity investment seems to capture the imagination more than the other finance types I’ve mentioned here — we tend to think of it equipping billion-dollar ‘unicorns’ with the economic firepower they need to make waves.

But there is another side to equity investment — it could be a good way to grow your business even if you’re not a Silicon Valley (or Silicon Roundabout) tech startup.

The first important question to ask yourself here is whether equity is the right choice or whether taking out a loan would be a better fit for your goals and your situation. The latter is often referred to as ‘debt finance’, which sounds ominous, but for many businesses it’s a better long-term choice because once the money is paid back, your obligation is finished.

On the other hand, equity investment requires you to sell a percentage of your business. That can be a great thing — you can raise significant funding to help you grow over the next year or more — but by selling equity you’re potentially sacrificing future gains if your business is successful in growing, and you’ll inevitably give up some control too.

Conclusion

Even though it’s hard to know what’s right for your business, one thing is clear — there are lots of ways to raise growth finance. If you’re looking to fund a long-term expansion plan, an unsecured growth loan could be the way to do it. Businesses with assets, on the other hand, might want to use them to base funding against.

Firms that offer trade credit have a valuable ‘asset’ in the form of their unpaid invoices, which can be used to unlock cash to keep momentum for the next project. And finally, companies with an attractive proposition can raise equity investment in return for a stake in their future.

Whatever option you choose, these can all be great ways to raise finance to grow your business.

Conrad Ford is Chief Executive of Funding Options, recently described by the Telegraph as “the matchmaking website for small businesses and lenders”. With the free Funding Options service, you can quickly search dozens of alternative business finance providers.

Praseeda Nair

Praseeda Nair

Praseeda was Editor for GrowthBusiness.co.uk from 2016 to 2018.

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