All capital is not alike. How you choose to secure funding will determine your company’s cash flow, risk, valuation, acquisitions, and future financing. Make sure you identify all your options—both traditional and unconventional—and pick one that suits you and your business.
A loan or line of credit from a bank offers standard terms to fund business growth. You can use a line of credit to meet your company’s short-term cash needs. Term loans often include credit specifications with owner guarantees and routine financial reporting requirements, but they’re still an important factor in driving down capital costs.
If your business is still in an early stage and unable to secure a conventional loan, a personally-secured business credit card or line of credit may be able to offer a solution. These capital sources provide quick access to funding when you need it, but at a much higher interest rate. You’ll want to pay them back as soon as possible to keep costs low.
Leasing equipment offers lower payments and can help your company avoid the cash flow shock of a major purchase. While leasing allows for better short-term cash flow, built-in financing costs could make it more expensive than an outright purchase.
If you’re not able to access traditional financing or need more funding than your loan stipulates, equity investors will provide you with capital in exchange for a share of your company’s ownership. Investors might be individuals or professional private equity firms that target businesses in need of growth capital. Partners usually expect a greater share of your profits and want to be involved in day-to-day operations, so anticipate a significant decline in your control and returns.
If you want to expand rapidly, consider M&A. Combining a complementary business with your own can provide additional capital and management expertise while eliminating overlap in product offerings, operations, distribution, and infrastructure. When acquiring or merging with a targeted company, be sure to take full advantage of its potential funding sources. Successful M&A requires strategy, effective deal selection, efficient merger execution, and support from industry and corporate finance specialists with relevant experience.
If you’re expanding and need more flexibility than conventional financing provides, you may qualify for an SBA loan. These loans are offered through the SBA and distributed by banks, with the SBA assuming most of the risk. SBA loans present you with flexible terms and more freedom in how you choose to use funding. They require thorough documentation, so you’ll want to speak with an experienced banker—like your Truist relationship manager—who can help you with your application.
Personal loans and alternative capital sources
There may come a time when you look to personal savings, family, and friends, or angel investors as potential capital. While they might offer more favorable terms than professional sources, these transactions can offer a different set of challenges by mixing business and personal relationships. Crowdsourcing is another option—be sure you research the regulations and understand how it may limit other fundraising methods.
Working with your suppliers to obtain favorable payment terms, discounts, and financing provides a quick way to access inexpensive working capital, but its use can be limited by the scale of your supplier’s credit and usual terms of the industry.
Selling your receivables to a commercial finance company at a discount can provide your company with cash and reduce your collection risk. It’s expensive compared to other forms of capital and typically only available to businesses with creditworthy customers.
State and local governments offer lending programs or outright grants for specific purposes and projects, like airport concessions or arts facilities.