The Smooth Road Ahead: How to Secure the Growth Capital You Need

Posted on: November 30th, 2016

Financing is the lifeblood of every successful business, and as your business grows, your need for financing grows with it. Capital is needed to introduce new products, expand into new markets, or purchase new equipment.

Raising such growth capital, while essential to a company’s successful future, can often be quite a challenge to entrepreneurs.Fortunately, fast-growing small and medium-sized enterprises have the option of a new and alternative way to fund themselves via growth loans.

Such loans combine features of traditional debt and equity finance, and help your business to grow without requiring you to give up control. However, as with any funding process, the road can be long and winding, causing you to easily lose your way.

Here are the essentials that will help smoothen that road and help you secure the growth capital you need- when you need it.

1. Show them that your company has the momentum they seek

Lenders providing growth loans generally provide larger amounts and invest earlier in the life cycle of a company in comparison to traditional bank loans or senior debt. Therefore, they depend on the future growth of the company, rather than the past performance for the debt to be repaid.

To secure growth capital, companies must show sustained momentum that will convince the lender that they will be able to generate sufficient cash to meet the debt repayments.

2. Highlight your business as a scalable opportunity

Showing that your business is a scalable opportunity will better facilitate your chance of gaining the growth capital you need. By funding “scalable” business, the growth lender is satisfied that the business opportunity is fully proven but only needs additional resources for expansion.

For instance, your company may need additional sales staff, a larger production facility, or resources for expansion to new geographies.

3. Be ready with clean business information and clear financial forecasts

Providing clean business information will reflect a mature management and can help ensure a quick and smooth funding process. Keep ready financial forecasts, which should include separate forecasts, on a monthly basis for profit and loss, cash flow, and the company’s balance-sheet.

In addition, the growth lender will require a fully funded business plan, achievable forecasts, and clear assumptions on key performance indicators, revenue build-up, costs structure and working capital dynamics

4. Offer reliable downside protection

Growth capital is available to businesses without significant assets to use as collateral. However, your chances of gaining growth capital will be much greater if you can show good visibility of future revenues.

Elements such as long-term contracts, blue-chip customers, a recurring revenue base, should be highlighted in your confidential memorandum to show the lender downside risk mitigation.

5. Present a workable structure

Finally, although growth lenders generally help you decide how much funding to seek, it is wiser to present a workable structure that suits your business. You are the best person who can decide what debt repayments your cash flow can sustain without putting a strain on your expansion plans.

Ultimately, a smooth road to growth financing depends on how well you do your homework. Prepare thoroughly for requests for more information, pointed questions and be ready for lengthy negotiations.

Remember to stay objective and keep your goals and the needs of your business in mind while negotiating for the right amount of cash.

In the acquisition financing arena, capital availability is destiny as companies require reliable access to capital to grow over the long term. Unforeseen capital needs usually arise when acquirers least expect it. This can cause some concern for the acquisition financing provider, especially when covenants tighten up and that working capital availability is utilized faster than expected.

Mezzanine debt borrowing is usually a straightforward activity that many companies use for funding of transitional growth. Mezzanine debt lenders are highly transparent about their due diligence approach and their post-closing loan management making it easy for companies to engage with.

Elections have consequences and positive ones at that for the acquisition financing middle market. While much media attention is paid to the direction of the yield curve and the Fed’s likely rate cuts, scant attention is paid to the more important drivers of the acquisition financing market – business psychology and regulatory climate.