Growing your business takes careful planning. If you’re like many small and medium-sized businesses, allocating financial resources to cover set expenses, investments and finance growth strategies is where creativity and resourcefulness are needed.
It’s likely you have a list of growth initiatives that you believe will carry you to the next level. Top growth-focused projects for businesses at this stage include:
- Expanding product lines
- Increasing marketing efforts
- Onboarding a fulfillment partners to support growing demand
- Hiring additional personnel to meet changing business needs.
Identifying the right resources to fuel your expansion can ensure you get and stay on a growth trajectory. But how do you do this? Business veterans will tell you that hastily selecting partners can set a business back, while avoiding the decision can cause you to miss out on key opportunities for long-term growth. The key to success is to take steps early to put resources in place to support opportunities when they occur. Sound overwhelming? Don’t be discouraged! Use this guide to help understand options available to invest in growth.
Finding the Right Financing Partners
A key component in navigating these uncharted waters smoothly is selecting solid outside financial partners. This is especially important as you seek resources that aid in growth without squeezing existing budget lines that operate the business. The right financial resources can position you to:
- Capitalize on market demand
- Grow without adding burdensome debt
- Fill new needs with scalable solutions.
There are a number of possibilities for small and medium-sized enterprises, from traditional bank/commercial loans, business lines of credit, factoring, loans from family and friends, angel investors, venture capital and inventory financing. Each of these financing options has inherent strengths and weaknesses. Here’s six ways to finance your growing business.
Bank/Commercial Loans
Historically, banks have been the first place businesses look to for further investment. The positive is that because of their strict requirements for securing loans and their low cost of capital, banks can maintain significantly lower rates. The challenge is that a younger business might not have the history established to secure funding based on traditional underwriting models, and the time between application and receiving funds can be too long for some needs or opportunities that arise quickly for rapidly growing companies.
If your business has less than two or three years of financial history you may need to consider an alternative until you build a track record for a bank to consider.
Factoring
Factoring is the practice of selling invoices to a third party, called a factor, at a discount. The factor pays you the discounted rate and later collects the full amount. This practice is also known as accounts receivable factoring.
This type of financing is usually done to meet immediate cash needs. One side benefit of factoring is the reduction of potentially risky debt, as the third-party buyer assumes all of the risk if the invoice is not paid.
One challenge is that the costs of these risks are passed onto your business through the discount noted above, so it can be an expensive option if not used correctly. A definite plus is that invoice factoring can move pretty quickly and the decisions are based on the payment history of the companies invoiced, not your business, so this is a viable option for new businesses.
If a large portion of your business comes through eCommerce, you would only be able to access factoring capital on your wholesale orders, and only after you deliver them to your buyers. It’s also important to note that while factoring can inject quick capital after you’ve delivered an order, it does not solve one of the more painful financial situations small businesses face: the potentially long gap between when you pay your supplier and when your buyer receives inventory from you and then submits payment.
Inventory Financing
Inventory financing leverages the resources of a financing partner to pay for inventory production, which is one of the largest expenses many brands report. Funding can be customized to address your business’s exact manufacturing, shipping, and sales timelines so that you don’t make a payment on goods until the inventory sells. This works well with natural cashflow cycles.
The products produced typically act as the collateral for the financing, meaning that if the business reports an inability to repay the funding, the inventory can be sold to cover the debt.
Inventory financing is especially valuable to any business experiencing a significant delay between paying for inventory and receiving payment from retailers. It is also helpful for businesses that want to receive volume-based discounts by placing larger orders to support all of their sales channels. This works best when done on a quarterly or other regular basis and can help to prevent the stock-out issues that hinder growth.
Angel Investors and Venture Capital
Angel investors and venture capitalists are typically affluent individuals or groups who infuse working capital into businesses in exchange for an equity stake or convertible debt. They gain an asset that can be converted into company shares or equivalent cash in exchange for providing businesses with much-needed capital.
These investors expect to make a profit and often also contribute their business acumen by acting in an advisory capacity to help your company grow. Finding angel investors or venture capitalists is not a quick solution. There is a great deal of due diligence that they will do behind the scenes so this should not be considered an option for those times when a quick infusion of cash is needed.
Business Credit Cards
Credit cards may be the easiest option for gaining additional purchasing power. They are typically simple to acquire and are flexible, as you don’t have to justify your spending. Unfortunately, the higher interest rates and lower limits tied to most credit cards is a definite challenge.
Most businesses find that credit cards are best used for cash flow during the early stages and for convenience to support small-scale revolving needs.
The Kickfurther Difference
For physical product companies (CPG companies), or those producing shelf-stable consumables, another growth funding option that provides larger amounts than traditional financing and at faster speeds is inventory funding with Kickfurther.
Kickfurther is an inventory funding option, where the manufacturing costs are sent directly to suppliers, and paid back as the inventory sells. This payment system aligns better with natural revenue cycles than does the immediate repayments many traditional and online loans feature. Funding inventory through Kickfurther prevents growing businesses from having to pinch cash on hand and choose between paying for additional inventory or investing in the marketing, equipment, and staff needed to grow.
Additional Points to Consider
Remember that the goal of additional funding, regardless of the source, is the acquisition of new customers, new markets, and new product lines, increased brand awareness, and improved operational efficiencies. The right funding partner allows you to stay flexible as you reinvest into your company to meet growth opportunities.
Before making any financing decision it is important to review all of the funding options available. Consider the ways each financing option enables you to scale upward as well as how the costs and structure will impact your bottom line in the short and long term. After doing this some companies find that stacking together a number of financing resources allows them to maximize the dollars available while keeping the cost of capital low.
AUTHOR BIO
Kickfurther helps CPG businesses grow faster by funding their inventory and allowing them to pay back later as it sells. Brands have funded over $100M in inventory over the past five years with Kickfurther. Companies selling through any combination of direct-to-consumer, online, wholesale, or retail channels use Kickfurther to fund $20,000-$1,000,000 in inventory they’ll repay on a custom timeline of 1-10 months based on their sales cycles.