Growth Financing Options and Practical Benefits

In this article, you’ll find information on the different growth financing options you can benefit from. You should be able to pick your preferred option from those listed.

Growth Financing Options

As businesses grow, so does their need for further financing to help them attain greater capacity. This expansion capital is only available to relatively mature companies to help accelerate their growth.

Operational restructuring is another benefit you get from growth financing.

As a strategy to take your business to the next level, you’ll need to find the right partners. Alternative lenders provide the funds needed for such restructuring.

Benefits of Growth Financing

With growth financing, your company improves in its credit rating as it’s able to better compete with others within the industry. Expansion is one of the key areas where growth financing is needed.

Businesses can conquer new territories through expansion.

Business value is positively impacted such that your value proposition to referral partners increases. What more? It improves your business’ standing with private equity groups investing in the industry.

Growth financing also helps improve your ability to provide higher discounts with key partners or vendors.

Types of Growth Financing

With this said, what growth financing do you have access to? There are several.

As a business owner, you get to choose from any of these growth financing options; seller financing, vendor financing, invoice financing, equity financing, bank financing, working capital financing, and property financing.

Each of these options offers businesses a range of opportunities that can be leveraged for growth and expansion. Let’s discuss each of these financing types to help with a better understanding of the benefits derived.

i. Seller Financing

This is a type of loan provided by a seller to a buyer. Seller financing is known by different names. In real estate, this is known as the “bond-for-title” or “owner financing.”

A mortgage agreement is entered into between the buyer and seller. Here, the buyer finds a financing alternative to bank financing.

Seller financing allows the buyer makes monthly payments to the seller at a set interest rate. So, does this type of growth financing have any benefit?

READ:   Oscar Health Insurance Reviews

Absolutely! Several benefits include better negotiation of repayment schedules, terms & conditions of the loan, as well as interest rates.

Both parties (buyer and seller) can save money on lawyer costs, interest expenses, stamp duties, and tax, among others. Under seller financing, you don’t have to qualify for a loan with a financial institution as a buyer.

While that is true, interest rates, as well as the equity, accrue to the seller.

ii. Vendor Financing

As the name suggests, vendor financing involves the lending of money by a vendor to a business owner. Here, the capital received by the borrower or business owner is meant to invest in the business to promote its growth further.

Under this arrangement, the money borrowed is used to purchase products and supplies from the same vendor.

Unlike traditional lending sources or institutions, this growth financing tends to attract higher interest rates. Nevertheless, it still helps promote the growth of the business while also building lasting relationships between vendors and business owners.

Also known as inventory financing, vendor financing is most suitable and common with startup businesses that seek to adopt this growth strategy to improve their operations.

iii. Invoice Financing

Invoice financing is another type of growth financing for businesses to acquire cash through the sale of outstanding invoices to invoice finance companies at a fee.

Here, a substantial part of your invoice value is lent to your business by the invoice financing company while it retrieves payments such payments from your clients.

You get multiple benefits from invoice financing that include protection from non-payment, keeping a healthy cash flow, establishing more beneficial relationships with clients and suppliers, and saving time and resources.

There are two types of invoice financing that include invoice discounting and invoice factoring.

iv. Equity Financing

Startups are mostly known to need equity financing as it satisfies their immediate short-term need for cash.

Equity financing comes in two forms; public stock offerings and private placement of stocks with investors. It’s not uncommon to find companies using this type of growth financing multiple times as they approach maturity.

READ:   How to Finance a Franchise Purchase - Best Financing Options

To protect all parties involved, equity financing agreements are regulated by relevant government agencies. Another way to explain what equity financing is about is the sale of a stake or part of the company to generate revenue.

v. Bank Financing

A traditional method of growth financing that has been around for a long is bank financing.

Here, businesses can access all kinds of financing options that range from business credit cards, business loans, and business lines of credit. Each of these financing options has its pros and cons.

There are times when bank financing isn’t a viable option for sourcing growth finance. A clear example of this is the financial crisis of 2008.

Today, businesses tend to have more appetite for this kind of growth financing as it’s becoming a more viable option. You’ll need to find what your bank’s requirements are for accessing this financing.

vi. Working Capital Financing

With working capital financing, your business seeks to borrow money to cover its day-to-day operations.

This includes payroll. Working capital financing is a type of growth financing that caters to immediate needs, especially when a business has inconsistent cash flow.

Working capital financing comes in different forms; lines of credit, working capital loans, invoice discounting, and overdrafts. Each of these types has its advantages and disadvantages.

In terms of the benefits of working capital financing, multiple benefits include zero need for collateral, a more flexible option, etc.

vii. Property Financing

Property financing is growing financing that’s more common with real estate.

Here, a loan is secured against a residential or commercial property or property portfolio. You’ll need to have existing properties to adopt this type of growth financing option.

One undeniable fact is that businesses need growth financing to achieve their full potential. We’ve identified different growth financing types and what they’re about.

You can choose any of these options to seek financing for your business.