An expanding business means increasing turnover and consequent increases in debtors (amounts owed to the business). Growing businesses often need to improve their credit control, making efforts to ensure their customers pay promptly and do not default on their debts. 

In the end, the question comes down to raising debt or equity, or sometimes both. Sometimes the equity route is compelling, either because the current shareholders cannot or will not inject any more finance, or because the current debt finance providers will not lend further money with further equity. Some of the main sources of finance for growing businesses are listed below.

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Equity finance options

As your business grows it might exhaust its borrowing abilities. Alternatively, your plans may involve incurring expenditure that will not result in the acquisition of tangible assets against which to raise finance, such as research and development or significant marketing expenditure. In these cases, raising equity finance may be a solution.

Business angels

Business angels are individuals who invest in early-stage businesses with growth potential in return for a stake in your company. Business angels will want a seat on the board and to receive regular updates on your company’s progress, so you will have to be prepared to relinquish some control.

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Corporate venture capital

Venture capitalists provide finance for growing businesses in exchange for a significant stake in the company. As professional investors, they can bring significant financial and management expertise, which might make it easier to attract further funding.

Venture capitalists rarely make investments below £2m, so they will need to be convinced that your business has the potential for sustained growth and that you have a sound management team to move the business forward.

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Crowdfunding

Equity crowdfunding provides companies looking for finance with a way to connect with vast numbers of potential investors, some of whom may also be customers. Crowdfunding may be an option if you are a start-up or small business with a compelling proposition and strong business plan.

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IPO/public offering

An initial public offering, or IPO, is the first sale of stock issued by a company to the public. Going public can raise a great deal of money, but also requires greater transparency of financial information. It is a potential option for businesses that require significant investment to make a step change, such as financing an acquisition or rebalance the balance sheet.

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Debt finance options

Asset-based finance

Asset-based finance is where lenders make funds available, secured against the company’s assets. It is only available to established businesses with assets and trading history. 

Ownership of the assets is retained by the lender for the duration of the contract. Such lenders prefer to deal with manufacturers, distributors and retailers who possess assets with a high recoverable value and a measurable residual value at the end of the borrowing period.

Asset-based finance is a collective term for invoice finance and asset-based lending. Invoice finance includes factoring, invoice discounting and supply chain finance.

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Business bank loans

Loans are for a set period and have set repayment dates with fixed or variable interest applied. These are normally secured by a charge over asset(s). There are often conditions attached to the loan (covenants), which can trigger a demand for immediate repayment if they are not met.

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Export or trade finance

For businesses trading across borders there are a number of finance options to support the purchase of goods and to mitigate risks of producing goods for export. Export finance helps mitigate risks, such as default or delayed payment, and can include other types of finance, such as factoring or invoice discounting. 

Traditional export finance tools include: letters of credit, and bonds and guarantees.

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Growth finance

Growth finance refers to capital loans and mezzanine finance. These are debt finance options most appropriate for financing high-growth businesses looking to make transformational changes.

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Overdraft

The lender offers an overdraft facility with a limit, with an agreed interest rate and probably secured. The business can dip in and out of the facility up to the limit. 

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Finance options by growth plans