There are a number of ways to finance a business’s growth. The type of financing that best suits a company depends upon several factors, including company structure, stage of growth, industry and anticipated use of funds. The key questions to ask are: What do you need the money for? Where are you trying to get to? What options exist for your business’s stage and industry?
Assume that you need money to launch a strong sales and marketing campaign to grow the company quickly but organically (i.e, from your own sales). You could look for a marketing partner to co-market with. For example, if you are a company that provides software to a particular industry, you could partner with a consulting firm that specializes in doing software implementations in that same industry. That firm could help market and sell your software as part of its overall industry “solution."
If you have created a product or service that will likely lead the company to explosive growth and you need funding to hire the personnel and install the necessary infrastructure, then raising equity capital would be the best financing strategy to use. For example, Craigslist needed capital to grow but wanted to maintain greater autonomy. It ultimately shunned the venture capitalists and obtained a sizable investment from eBay.
If your company generates high cash flow or you estimate that it will when a new product or service is finalized, a bank or similar loan would be a good financing strategy. The business would then repay the loan with the cash flow. For example, a retailer with strong profit margins needs cash to purchase larger quantities of fast-selling inventory. The retailer could pursue a line of credit that would be repaid as the inventory sold.
The financing strategy for a small business depends significantly on what the company is trying to accomplish, what its financial structure looks like and what the money will be used for. One strategy may be perfect for one company but lead to the demise of another. For example, a company with minimal profit margins and a moderate debt load would not do well to take on additional debt. If the company encountered a setback, financial distress could result.