Business is like a shark – if it stops moving, it dies. The same goes with growth – if a business isn’t doing all it can to grow, it’s stagnating. Though interest rates are rising and inflation makes forward planning uncertain, financing your business growth should be a strategic move in and of itself.
Whether you are looking to move out of the startup phase, move into that next tier of business, or angling for an IPO, here are five ways to finance your business growth.
Plan your strategy
What does business growth look like? Are you looking to pivot into a business of the future? Expand your operations? Open new locations? Move to vertically integrate? Cut costs and go entirely online, investing the savings into bigger supply chains? No matter what kind of finance you choose, you will need a strategy to underpin it. Your goals should be specific, measurable, achievable, realistic, and time-bound – a SMART goal.
Use a business loan calculator
The second way towards financing business growth is to make use of a business loan repayments calculator. Once you have a strategy for growth, you will need to calculate how much capital you’ll need to raise to fund your purchases or expansion targets. A business loan calculator requires the amount you’ll borrow, the term of the loan (usually five years, but can be shorter or longer), and the interest rate.
When looking at “back of the envelope” calculations, make sure you find comparison rates when possible – comparison rates include most ongoing fees and charges included and expressed as a total interest rate.
Using unsecured business finance
Unsecured or no-collateral business finance is an easy and straightforward way of getting access to finance for equipment, inventory, and other performing assets. It’s one of the more common forms of business finance, accessible to small and medium businesses so they can grow. For financing major asset purchases such as land, you may need to obtain secured business finance.
Lines of credit
A line of credit is a type of revolving loan that businesses can access when they require it. Instead of money being transferred to the business, a lender will approve your business for a set amount of credit. You are able to withdraw funds from the line of credit and only pay interest on the portion you use. This can be useful for shoring up short-term cash flow interruptions or seasonal slowdowns in your industry.
Invoice factoring or invoice financing is a method to borrow against the value of your outstanding invoices and maintain cash flow. This helps you keep you flush with operating capital. It’s also a relatively cheap way to gain early access to the value of your sales because lenders view it as low-risk. Essentially, the invoice itself provides security against your borrowing – so you don’t need a security. Your business is given 75-85% of the value of your outstanding invoice with the rest paid when your debtor pays, minus the factoring fee and other charges.
Remember to consult your financial adviser before applying for any form of business credit.