With growth capital, you can:
- Purchase equipment to increase your production and potential sales.
- Add employees to increase production, develop and carry out strategic plans.
- Increase marketing and advertising to help increase sales.
- Purchase real estate to house expanding operations.
- Enter a new market or expand your product/service line.
- Acquire or merge with another company to give your business a step up.
There are three basic types of capital that can be used to fund investments necessary to grow your business. The best financing plans often use multiple sources of capital working together.
1. Public Equity
A resource that many business owners dream of mining is public investment money. The potential is huge…if you succeed. But initiating an initial public offering (IPO) to sell your company stock on a public exchange can be complicated and expensive. It also may not raise the amount of money you expect, if public opinion of your company’s value does not match your own. Only a few hundred companies per year follow this path, and most have multi-hundred million dollar or billion dollar valuations.
2. Private Equity
Private equity, like public equity, involves exchanging a portion of ownership for capital. Purchasers can be anyone from friends and family giving your business a helping hand to a private equity group buying all or part of your company. Since this type of transaction is private, it can be less complicated and tends to be more suitable than public equity for small-to-middle market companies. Also, if a private equity group is involved, you’re likely to receive not only funding but also professional advice and assistance.
Debt growth capital doesn’t require giving up any ownership or equity in the company in exchange for funding. It does require repayment over time. Different types of debt financing offer different benefits and restrictions. Your first decision will probably be between a term loan that gives you all of your money up front and a revolving line of credit that gives you flexibility in when and how much you borrow. In either case, you will have a variety of types of lenders to choose from also, including banks, credit unions and specialty alternative sources, such as asset-based lenders.
Working With Multiple Capital Sources
Equity and debt can complement each other and, together, may help you succeed sooner. The best growth financing solutions usually combine multiple capital sources, such as private equity, asset-based lending and mezzanine debt.
The key to mixing equity and debt effectively may lie in how you use each resource. Debt can be especially useful for short-term expenses and working capital during transitional and growth phases. However, you must have something solid — cash flows, revenue, profits or assets — in place to attract a lender.
Equity fundraising is more about investors’ future expectations than your company’s current situation. These investors look at what your business can potentially achieve and how quickly. Many companies use equity for strategic, high-impact projects and pivotal changes in products or services.
When a combination of resources is optimal, it’s crucial for all your financial partners to be adept at working together. Gibraltar Business Capital is an expert in working with private equity groups and their sponsored companies. Talk to a member of Gibraltar’s expert sales team to learn how asset-based financing and experience working with other financial partners can help grow your business.