Well, you’ve got an excellent team, efficient organization, and worthy equipment, and people really like your service. You’re ready to scale. But, you need capital. What are your options? What are the steps necessary to attract funding for business growth if you pursue one of those routes to secure funds? What are the caveats?
Yes, there are critical questions to be answered. Here’s a good place to start. It’s a list of common business growth funding sources and a little direction on how to proceed when you identify one or more types you think are most likely to produce the results you need to achieve your goals.
Where’s All the Money for Small Business Growth?
Look through this list of common funding sources and narrow it down to one or a few that you think make sense to approach in your efforts to raise the capital you need to finance your plans for growing your business:
Bootstrapping
This is the use-your-own-money approach to getting more money. What? It’s the obscure first option to finding funding. The beauty of it is that you don’t have to borrow or pay interest on the money you raise. It involves first making a list of your business and personal assets.
How to succeed with this approach: Make some, perhaps uncomfortable, choices of things you can live without while you sell them off and redirect their liquid value toward buying other things that you need more immediately to help raise money for expansion.
Caveat: Make sure the items you sell are really things you can live without, at least until you can replace them later.
Friends and Family
This can be a practical, though maybe awkward, but no- or low-cost approach to borrowing money for business expansion. It’s not for everybody. But, if you have an amenable social and/or familial support system, you may be able to save a lot of money on interest and avoid a lot of wasted time finding and slowly paying back traditional lenders.
How to succeed with this approach: Consider giving your family or friends who help you at least a small but appreciable interest rate to demonstrate to provide “something in it for them.”
Caveat: Don’t make a habit of this kind of borrowing. And, above all, pay your family and friends back on time.
Business Incubators and Accelerators
Business incubators help entrepreneurs move from the idea phase through the startup period. Accelerators help them advance beyond the startup and into the next phase of growth.
How to succeed with this approach: Find out which programs are likely to be most open to funding your business model. In other words, if you’re offering a diverse array of services in addition to pavement sweeping, apply to programs that can offer enough to help you scale across those lines.
Caveat: These funding selections can be highly competitive. You may need to apply to multiple programs to succeed and results are not assured.
Personal Investors
If you know or know of one or more people who may want to invest directly in your business because they are aware of its potential and are willing to take a risk on it, then this option may be right for you.
How to succeed with this approach: Ask people you know who they know who may be a good fit for your business and ask for contact information. Reach out and request a meeting. Show up and make your case.
Caveat: Set up an LLC, or incorporate to protect yourself and everyone who onboards as an investor from personal asset losses due to potential claims against the company. This also provides a legal structure in which to establish a power hierarchy and clear rules for functioning as a pair or larger group of owners.
Conventional Lenders
If you have built up sufficient equity in your business and/or personal assets, then this may be the simplest and fastest method of obtaining funding. That means you have enough loan value remaining in private property items, i.e., value that is not being used as security for other loans, to secure additional financing.
How to succeed with this approach: Take your carefully composed business expansion plan to your lender of choice and see what they can do for you.
Caveat: Lenders want to lend, so if your credit history, equity profile, and profit plan make sense, you can probably expect to receive your requested funds this way, barring any adverse institutional or external economic factors.
Venture Capitalists
Venture capital firms tend to invest in businesses during the earliest part of the operations startup phase through the approaching close of the startup years. VC investors prefer growing startups with promising futures that have yet unproven potential for growth and large longer-term ROI.
How to succeed with this approach: It’s much less difficult to obtain venture capital investment if you have a strong reference from a credible financial associate of the VC investor you plan to approach. For ambitious commercial sweeping business owners ready to scale and with a viable plan to do it, VC investment may well be accessible to you and a good option.
Caveat: To make an unsolicited presentation, make sure the value of your proposition is so undeniable and in such high demand that the VC agent is pursuing you. Otherwise, you should be confident that you have included every item on the list of Business Plan package contents in the section below. The, look your best, balance your caffeine level, and treat the high-stakes presentation like the rather long shot that it probably is.
Private Equity Investors
Private equity investors prefer to invest in better-established businesses that show strong potential to increase their profit margins with the investment. PE firms typically are not inclined to take the long view, but instead prepare to exit after just a few years. Their model is to fund improvement of the business and then sell their interest at a profit.
How to succeed with this approach: PE has proven to be a viable resource for rapidly growing pavement sweeping organizations. At least one quickly scaling sweeping company in the southeast US has grown spectacularly in a short time, primarily through private equity investment, per our meeting with the owner.
Caveat: Unless you are looking to scale to an unusual extent at an extraordinary rate, you are probably well advised to pursue less potentially engaged investors for your growing business.
Government Loan and Grant Programs
There are numerous alternatives in federally-funded loans and grants for small business owners. Loans from the government are usually at the lower end of available interest rates in any given lending market area or period. Federal business grants may be entirely interest-free.
How to succeed with this approach: Consult with your local SBA representative for the best current guidance on which opportunities make the most sense for you to explore and where and how to apply.
Caveat: The application processing period can be longer and more involved than in the private loan market, and results are not guaranteed.
Seek Free Guidance from Your Local SBA Advisor
The Small Business Administration representative in your local area is there to assist you. You may be amazed at the amount and kinds of help your SBA agent can provide. At the very least, he/she is someone you can talk with freely about your goals, plans, and needs for your business and expect frank professional feedback and guidance intended to help you. The SBA can potentially even direct you to the best funding source, depending on your situation.
The SBA agent has a wealth of local, state, and national connections to valuable information sources and financial resource providers. The first step toward tapping into the vast reserve of knowledge and assistance that the SBA represents is just sitting down for a general conversation about what you have in mind for your business’s future.
Prepare a Viable Business Plan
You need a cohesive strategic plan for growth that prospective lenders and investors can clearly understand and support. Ideally, your Business Plan package should include:
Cover page Recent financial statement Several years of tax returns Business and personal asset valuations Cash flow statement Budget Income projections | Customer profile Company mission and vision statement Any relevant inspection reports Estimated total sale value of the business operations and assets Depreciation schedules | Statement of growth goals Growth needs analysis Research findings (with photos if applicable) used for estimating costs of proposed purchases of real estate, vehicles, equipment, and other growth-related expenditures. Summary |
General Advice for Raising Capital for Growth
When you’re ready, chances are that you’ll embark on one of the avenues for funding discussed above. Or, you may decide to try more cutting-edge approaches, like angel investors, online lending platforms, investment platforms, crowdfunding, or even social media. In any case, you’ll need to have a few things in place, as below.
Create both a persuasive elevator pitch and a long-form presentation of your business plan and rationale to represent yourself and your company as a good credit/investment risk. No matter how good you are at preparing paper and/or digital presentations, get someone with proofing skills and someone else with business skills for a total of at least two bright people to harshly scrutinize your material. You don’t have to take any of their suggestions, but be sure to gather them, at least for reference to what you might encounter when you present the plan to prospective lenders and/or investors.
Expect failure. A little failure is good for the character anyway, right? So, don’t be put off by it. The credit bureaus and lenders don’t penalize applicants for multiple inquiries of the same type within a short period (of a few months or so). So, try to relax a little and, by all means, stay at it. If you’ve got a good case and stick with the effort, you’ll probably find a taker sooner rather than later, depending on larger economic variables, of course.
Congratulations – You’ve Already Come Far!
Nice work reaching the point in your entrepreneurial career at which you’re ready for the next challenge! That is, by any reasonable measure, a huge achievement in and of itself. What an exhilarating time! It means, by definition, that your success to date qualifies you to take the necessary next steps for even greater progress on your path toward fulfillment of your vision for your future and your life.