Whether your company has $500,000 of revenue or $500,000,000 of revenue, most executives and owners are pursuing company growth. When most people think of growing their companies, they think of bringing in financial partners.
The idea of bringing in additional partners can be a turn off to many executives and owners. Luckily, there are ways to grow a company without bringing in equity capital. These are the three best ways to grow a company without giving away equity.
Commercial Credit is a great alternative for companies seeking to finance growth without selling equity.
Commercial credit permits a qualifying company to obtain senior or subordinated loans in order to expand or restructure operations, enter new markets, expand product or service offerings, or finance a significant acquisition without a change of control of the business. Qualifications vary dramatically depending upon the type of financing sought, as well as the particular posture and metrics of the borrower.
Commercial Credit takes many forms, including:
Term Loans are loans to be repaid over a set period of time. The lender providing the term loan will generally have a blanket lien over the assets of the company. Term loans are great for companies that have assets for the lenders to use as collateral.
Cash Flow Loans
Cash Flow Loans are loans where eligibility is determined by the cash flow of the company, rather than the assets. Cash Flow Loans can be great for companies that have cash flow, but little collateral.
Equipment Financing can be structured in a number of ways. Often, the lender will purchase the equipment and lease it to the company. Equipment financing works well for companies that will see a dramatic increase in revenue or EBITDA from the acquisition of the new equipment.
Factoring involves a lender purchasing a company’s receivables at a discount to the fixed amount of the receivable.
Accounts Receivable Financing
Accounts Receivable Financing is similar to factoring. It involves lending money on the basis of the amounts and quality of the accounts receivable a company has. It differs from Factoring in that Accounts Receivable Financing does not involve the purchase of the receivable. As a result, to the extent that the amount collected exceeds the amount lent against the receivable, it is returned to the company.
Inventory & Purchase Order Financing
Inventory & Purchase Order Financing is in the form of a revolving line of credit, where the company can use the capital to finance their inventory or purchase orders.
One of the most overlooked ways to grow a company is through Business Development. Business development involves the development of relationships with third parties, whether companies, individuals, or other entities, with the objective of creating mutual benefit.
Companies generally engage in business development for one or more of the following reasons:
- To obtain new commercial clients, vendors, or sources of supply or distribution
- To increase sales to existing clients
- To gain access to new or competitively important technologies, e.g., licensing or partnering, in order to improve existing products or create new products
- To expand geographically
- To increase efficiency, e.g., partnering with firms marketing or selling non-competitive products to the same client base as the base to which you market or sell
- To obtain additional human capital, e.g., executive or strategic search
Business development can result in a number of different types of highly beneficial relationships:
- Partnerships: in which your company and another company collaborate for mutual benefit, generally either to gain marketing or sales efficiencies, create new products, or provide competitive advantage or efficiency
- Commercial Relationships: in which your company either develops relationships with new or existing clients or supplements your available vendors or sources of supply or distribution
- Licensing Arrangements: in which you either license your technology to a third party or license technology from a third party
- Human Capital Arrangements: whether in the form of employment, director, or advisor
We’re proud to have recently onboarded a fantastic business development team for our clients. Learn more about Business Development
Revenue-Based Financing providers supply capital to revenue producing companies by purchasing a percentage of their future revenues. Their advances do not require the issuance of stock or notes and is non-dilutive to the ownership of the company. Revenue-Based Financing providers generally do not require board representation or observer rights as a condition to making their advance.
Revenue-Based Financing has some distinct advantages:
- No burdensome covenants
- Clear payment model prior to funding
- No warrants or equity component
- Set payment term
- Can co-exist with existing and future debt
- Speedy: most transactions are funded within four weeks
Wondering what is best for your company?
We are always happy to discuss the funding and growth options available to a company. Please use the contact form below and a member of our team will be in touch shortly.