If a small business is worth its salt, it will have a strong desire to expand. Part of the reason for this is because that means a larger presence and more jobs as well. But as an entrepreneur, how do you go about doing that? One of the ways is through obtaining growth capital, which can be defined as money that your business borrows in order to grow your operations. Of course, you can get growth capital in many different forms, including long-term financing and lines of credit. Growth capital is different than working capital because it only involves financing that finances the growth of the business and not day-to-day expenses. You can use growth capital to purchase commercial property, add employees, purchase equipment, increase your advertising and marketing prowess, enter new markets, and even acquire another company. Of course, this all begs the question: how do you acquire growth capital in the first place? It’s usually through loans, and here are some of the main ways:
Conventional Growth Capital Loans
All things being equal, this is one of the best ways to do it. A conventional growth capital loan is better known as simply just financing through a bank, and financial institutions such as large and smaller banks, credit unions, community banks, and even non-profit lenders will often have the best terms and rates and can offer you both lines of credit and longer-amortizing loans as well.
Small Business Administration (SBA) Loans
The best way to describe an SBA loan is that it is kind of like a bank loan except with enhancements (a guarantee by the SBA that covers most or all of the loan as a last resort). You can get SBA loans for startup financing, expansion or construction costs, acquiring new businesses, and simply for working capital as well.
Growth Capital Based on Assets
Considering that bank lenders are often going to need to see both collateral and solid cash-flow, some companies may have a challenge getting financing. Such companies can usually apply for a loan by mortgaging their personal real estate, commercial real estate, machinery, equipment, or inventory as collateral to get financing. This is called asset-based lending, and while the interest is higher than a regular bank loan, it is one option that you can consider.
Finally, there are a lot of entrepreneurs that will consider crowdfunding campaigns. As long as you utilize the right product and pitch, you can connect with like-minded individuals who want to see your venture grow exponentially. Usually, you will have to do a video pitch, but as long as you sell yourself well you can raise funding for your business.
Which one of these will work for you? Do your research and you will find the best option for your business venture.