Most business owners aim to scale up and grow their businesses. Scaling up is one of the tell-tale signs of business success. However, it’s an aspect that often takes time and consumes many resources.
You’ll need more equipment and tools to meet the new needs that come with the growth. You might also need to employ more workers for productivity purposes. These needs pile up and increase the financial pressure.
In most cases, startups won’t have enough funds to scale up, and the financial industry has come up with solutions to cushion them during this period. They do this by offering several funding options that’ll let business owners fund the scale-up.
How do you choose the right funding solution with the many options available? Below’s a guide to the process:
Table of Contents
1. Know The Available Funding Options
There are many sources to get your financing needs, the common being banks. Knowing and understanding each available option enables you to make an informed decision instead of settling for what’s available.
Most funding options fall under two categories, dilutive and non-dilutive funding. Dilutive funding requires you to sell a portion of your company to the lender, often investors. Instead of repaying the money you borrowed, the lender will earn from your company’s shares.
On the other hand, what is non-dilutive funding? It’s a type of funding that doesn’t require you to give up a piece of your company to grow your company. Instead, you’ll pay the lender over an agreed period. These include tax credits, crowdfunding, grants, and bank loans.
Before choosing a funding option, research and learn more about all the options that fall under each category, comprehending the merits, demerits, and best situations to adopt each. This should help you make an informed decision about which option best suits your business needs.
2. Define Your Financial Needs
Generally, defining your business’s financial needs ensures you choose a funding solution that meets these needs without fail. Therefore, once you’ve figured out the necessity of the funding, identify the specific aspects that need financing.
The overall goal is to scale up; however, you want to be more detailed than this. Write down the resources you need for the scaling, including the amount you’ll incur under each. Doing this enables you to arrive at a concrete figure for the financing you need.
You don’t want to get more than you need; it might cause you to overspend unnecessarily, leading to wastage. On the other hand, funding too little will still cause you financial strain; it might be challenging to get new funding with an existing loan.
3. Look At The Terms And Conditions
The right funding solution is one whose terms and conditions you’re comfortable with. Hence, look at the terms and conditions of a given funding option.
Under terms and conditions, focus on the interest rates in the case of non-dilutive funding. How much interest will you pay in addition to the amount borrowed? Is the interest rate extremely high, considering the amount borrowed? It’s the question to ask.
Also, check the minimum financing term. The minimum term refers to the period you must repay the borrowed money. Access to funding is another aspect to focus on. It details how soon you’ll get access to the funding after agreeing to the terms and signing relevant documents.
Will it be instant or take 30 days or even more? Moreover, you should also check if you’ll need collateral and the penalties you’ll incur in case of delayed or non-payment.
4. Find A Suitable Funding Company
Besides focusing on the specific funding solution, you should also consider the company or source of the funding. Do this because companies might offer similar funding solutions but will do this differently.
The best way to find a suitable funding company is to identify the funding solution you want for your startup. Follow this by identifying providers that offer your chosen funding solution. If you opt for bank loans, identify several banks that offer the loan you want. For equity financing, consolidate a list of the investors that want a share of your company in exchange for the financing.
Here, you want to compare how each option offers its financing. What’s the advantage of Bank A over Bank C? Does Investor A have friendlier terms than Investor B? Overall, choose the funding provider that offers your desired financing at the best terms and rates.
Besides checking services, it’s essential to check the legitimacy of a provider. You want to avoid getting into a scam, losing all your money, or unknowingly entering the wrong side of the law. The provider’s reputation and reviews will help you verify their legitimacy.
No previous or current client should complain about losing money to the provider or even the provider failing to meet the end of their bargain.
Finding the right funding solution for your business scale-up is crucial for success. Therefore, you need to know your financial needs and find a solution that meets all of them favorably. Moreover, consider using the tips above in selecting your ideal funding solution.