When you’re growing a business, there’s some truth to the saying “It takes money to make money.” To execute plans like expanding into new territory, accessing new markets, adding a product line, or modernizing your equipment, you’ll likely need to secure funding first.

This could range from applying for a loan to seeking private investors. You can raise capital in a lot of ways, and finding the sources that best fit your needs requires careful consideration.

Here are three key insights to remember on your capital formation journey.

1. The right capital source might not be the one you thought you needed.

It’s common for businesses to embark on a growth plan only to find that their first choice for capital isn’t a good fit. For example, you might pursue a conventional business loan but find the down payment requirement is more than you can handle. Or you might look into purchasing equipment to support an increase in production but realize the payments will cause short-term cash flow issues. You might even consider a line of credit to help cover daily operating expenses but find managing your payables and receivables could free up the capital you need.

Factor in your risk profile, business value, short-term needs, and long-term goals when deciding what capital source is right for you. Most businesses rely on multiple sources of capital—and you may find yourself needing more than one. So, we recommend exploring both traditional and unconventional routes.

Consider factors like your risk profile, business value, short-term needs, and long-term goals when deciding what capital source is right.

For example, if a conventional business loan is a stretch, the more flexible terms of a Small Business Administration (SBA) loan might be right for you. Instead of taking on debt, you might consider a private investor—even though that could mean giving up control over some aspects of your business. If you’re in the market for new equipment, a lease could be a smart option, with tax benefits and lower payments than a loan.

A Truist relationship manager can help you weigh the pros and cons of these and other options like equity funding, mergers and acquisitions (M&A), vendor credit, and private investment.

> Find out if some of these common sources of capital could be right for you.

2. Getting the right debt-to-equity balance can depend on where you are in your business lifecycle.

As you consider different sources of capital for your business, you might be exploring both the advantages and challenges of debt financing versus equity financing. Larger companies typically build a capital structure that includes a mix of both types. And that mix can fluctuate over time, depending on what stage of your business lifecycle you’re in.

For example, early-stage businesses might not have the positive cash flow needed to qualify for and repay debt financing, like loans, credit cards, and lines of credit. If that’s the case, it might be smart to pursue equity financing. Selling a part of your business to infuse capital into it might mean sharing control and profits with an investor, but you won’t have anything to pay back—or interest rates to worry about. This could help keep you in a solid financial position while your cash flow improves.

Then, as your company grows, you’ll be better suited to take on more debt. But in the established or transition stages, debt financing can present a challenge, especially for businesses with large debt-to-equity ratios. The high cost of debt servicing can trigger cash flow issues, which could make debt financing more difficult to secure. In that instance, it can be beneficial to add equity again. For example, if you had to sell some of the equity in your company in the early stages, you may be able to buy it back as your business matures.

Your Truist relationship manager will get to know your company inside and out and can proactively bring solutions and opportunities based on what stage you’re in.

> Explore the pros and cons of debt vs. equity financing.

3. Keeping quality financial records may be more valuable than you thought. 

If the right choice for your business is debt financing, the next step will be convincing your lender to approve your loan or line of credit. One of the main factors they’ll consider is your company’s financial health. They’ll want to evaluate how your company has performed in the past, how you control expenses, what your profitability looks like, and how your company adapts to changing conditions.

Financial records convey most of this information. Your lender will evaluate the quality and regularity of these statements, whether they’re compiled by you, an in-house accountant, or an outside firm. The more organized and accurate your financial records are, the better chance you’ll have of being approved for financing.

A proactive approach to maintaining clean financial records can have an added benefit. With a solid financial infrastructure in place, you can produce and maintain documentation of your company’s ability to produce cash flow throughout the business lifecycle. You can then use this information to drive more strategic decisions, leading to better outcomes—and greater value for your business.

> Get more tips on securing credit for your business.

Ready to grow your business?

Talk to your Truist relationship manager about the financing options that can help you meet your goals.

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*This form is for prospects. Truist clients should contact their relationship manager with inquiries related to commercial products and services.

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