How Growth Funding Helps Businesses?

According to latest reports by Fortune, more than 100,000 business that have temporarily shut down due to pandemic are now out funds. They are not able to continue their businesses. It’s because their finance cycle was completely disturbed and they didn’t have enough funds of finance when they needed the most. Here comes the concept of liquidity which is helping businesses to grow with more pace and proportion.

Liquidity is the term that explains how easily or quickly you can get the cash in your hand. In simpler words liquidity is the process of getting the money for your business whenever you need it.

It could be saviour of your business and can help you in emergency. For example, the business is now launched, orders are piling up and the working capital requirement (WCR) is increasing. Development projects are emerging and the lack of equity is felt. New intangible resources must be acquired. Investing, recruiting, soliciting new partners, moving towards international development.

These are new challenges to which business owners of growing companies must respond. Faced with each problem, there are many financial solutions that it is important to know: short-term operating credits, financing the operating cycle of the company and facing debts, medium and long-term bank loans for the financing of investments, the intervention of one or more venture capitalists when strengthening the company's equity capital is required.

Operating loans are financing formulas adapted to the cash flow needs of the company in its daily activity. Very often young companies are faced with the problem of financing their working capital requirement (WCR). Often neglected by creators in the start-up phase, working capital increases during the first years of activity. An important order to honor, payment terms that increase and the cash flow looks down. Specific solutions can therefore be negotiated with the bank to avoid dangerous situations.

Second method of getting funds is bank financing and leasing system. Medium and long-term bank loans are commonly used to finance its development, particularly through new acquisitions. This type of bank financing and leasing includes bank loan, growth loan, credit application with the Chartered Accountants network, furniture leasing, financial leasing and real estate leasing.

The most effective method to get funded is adapting growth funding resources. If you want to make investments, under certain conditions you can get a loan for your business from a growth fund. Companies that want to grow need to have a solid foundation. Therefore, first devoting oneself to the development is essential for the successful implementation of growth plans. If essential steps of the development phase are obscured by excessive growth euphoria, there is a risk of a crash landing.

It is therefore important that, in the first step, companies are clear about which financing options are actually suitable for growth plans - and which are not. The growth financing is also available to deal with the economic consequences of the COVID-19 crisis. Growth financing supports you as a commercial company or as a small company in financing investments if you have been active in the market and have a renowned brand.

You can get the loan for:

• Expansions and relocations
• Rationalization and modernization
• The conversion of the production process or the product range
• Acquiring businesses as well
• Resources and warehouse

There are two main types of growth funding - growth funding with equity and growth funding with debt capital.

1. Growth Funding with Equity

Well-capitalized companies may well be able to tackle an expansion or growth phase with equity. Around two thirds of all Swiss SMEs today finance their growth with equity. A distinction is made between the following three common variants:

Self-financing

The company retains its profits for years to invest in a growth project. And the company remains independent.

Additional equity or loan

Capital is raised in the private environment and earns attractive interest. The company retains its profits for years to invest in a growth project. And the company remains independent.

Investors

Business angels, venture capital or crowdfunding are the most common methods of getting investor money today. The investor can be a strategic partner who can accelerate growth with his expertise and a large network.

2. Growth Funding with Debt Capital

Borrowing capital from the bank can also be useful for financing sustainable growth - no less than a third of Swiss SMEs do this. Explore the four different variants that shown below:

Business

This loan enables a company to finance its current assets and to compensate for possible fluctuations in liquidity. This is flexible and cheaper than equity.

Investment

Bank loans that are used to finance investments in the company. This can affect new tangible assets such as machines or vehicles in the form of replacement investments or expansion investments to boost growth. These loans secure liquidity and increase competitiveness.

Capital goods leasing

Acquisition of mobile capital goods such as machines, production systems or means of transport by means of a leasing contract with the bank. It protects liquidity because the payment or costs are spread over several years.

Factoring

The bank buys outstanding receivables from third parties from a company and insures them, which protects the company from bad debt losses. The balance sheet is relieved and liquidity is increased. Financing is based on the development of sales.