5 tips for financing your growing business

It will help you acquire new buildings, invest in new machinery, and ensure you have the funds to buy more inventory. But it’s not always easy to get a loan and use it wisely.

Here are five tips to help you avoid common mistakes and ensure you have the best chance of financing your growing business.

1. Understand what growth financing is

What is growth financing? It’s simply a business loan that provides the capital needed to carry out a project that would increase your company’s profitability.

“It sounds simple, but we’re talking about several different types of projects, from acquiring a competitor to upgrading technology.

According to George Vaso , the main reason to finance a growth project with a loan is to protect your cash flow . By financing a large investment, you spread the expenses over time, which helps protect your cash reserves, at least initially.

2. Choose the best sources of financing for you

What are the best sources of financing for business growth? This question is important because there are several different sources of financing.

Banks are an obvious option. However, each bank has its own range of financial products, its own risk tolerance, and, most importantly, its own approach.

Beyond banks, federal and provincial governments also offer growth financing, sometimes with favorable terms.  Some programs are designed to help companies access new markets, while others aim to help them upgrade their equipment.

Finally, consider asking salespeople about financing a purchase . Many are likely to offer loans or special terms if it means a sale, which is beneficial to both the salesperson and you.

3. Explore your options, then choose the best one

When evaluating your financing options, keep the following criteria in mind:

Cost of Money Is

the interest rate competitive, and is it realistic in the context of your business metrics? How will it affect

Terms and Conditions

Conditions

Some banks may impose conditions based on your financial performance. For example, they might require you to keep certain ratios below a certain value, or they might request a refund or impose penalties.

Personal Guarantees

Some financial institutions may offer a loan to your business, but also require that you, as the business owner, be personally liable for the business ‘s debt in the event of default.

4. Moderate your growth rate

Faster growth is always attractive, but it is not always or even often the case.

“A hockey stick growth curve isn’t always a good thing. Sure, your sales are growing rapidly, but can your business keep up?” asks George Vaso . Growing sales means you’re spending more on raw materials, labor, and inventory. If you don’t collect your receivables quickly enough, you could face a cash crunch and have to shut down production.

It’s often better for a business to target slower, but steady, growth. This will make it easier for you to plan, whereas explosive growth will put your business in a reactive position.

” Rapid growth requires more money, faster, and it’s also riskier, so you end up paying a lot more to borrow than if your growth is steady and slow.”