When owners look for growth funding, the first question is usually "who will lend to me?" It should be "what is this money going to pay for?"
Short-term needs take short-term money. Long-term assets take long-term money. Risky bets take risk capital. Most funding problems start when these get mixed up, such as an overdraft quietly funding a two-year expansion.
The funding ladder
Use the lower rungs first. Cost, complexity and the control you give up generally rise as you climb.
- Your own cash: retained profit, and cash released from debtors, stock and overheads
- Asset-backed lending: invoice finance, asset finance, trade finance
- Bank and term debt: revolving credit facilities and term loans
- Government-backed support: guaranteed loans, grants and tax reliefs
- Equity: angel investors, EIS-backed investment, private equity
The first rung is the one most often skipped. Before borrowing to fund growth, check what's tied up in slow-paying customers, slow-moving stock and costs that no longer earn their place. It's the cheapest money you will ever raise.
Which funding fits which route
- Organic growth: retained profit, invoice finance, an overdraft or revolving credit facility, and trade finance for imported stock. Watch out for using an overdraft to pay for long-term investment.
- Acquisitions: cash, deferred payments and earn-outs agreed with the seller, an acquisition term loan, growth capital. Watch out for debt sized on optimistic combined profits rather than sustainable ones.
- New products and services: retained profit, R&D tax relief, innovation grants, asset finance for equipment, EIS-backed equity. Grants are slow and rarely cover everything, so fund the gap.
- Marketing and business development: retained profit within a set budget, and unsecured growth loans for larger pushes. Watch out for borrowing for activity you can't measure.
What lenders and investors look at first
Whatever rung you're on, the questions are similar: up-to-date management accounts, a cash forecast, a clear plan for how the money will be used and repaid, and a management team that isn't just the owner. Having these ready before you ask speeds things up and usually improves the terms.
The FD view
The right funding is the cheapest money that matches the life of what it pays for, and still leaves you headroom for a bad quarter. Funding decisions depend on your circumstances, so take advice before committing.
Do this next
List what your growth plan needs to pay for, split into working capital, equipment and one-off projects. Then match each line to a rung on the ladder, starting at the bottom.
Work out how much funding you need first
The Funding Growth Calculator shows how much cash your plan will eat and how much of it your own profit can cover.
Try the Funding Growth Calculator →Try it on your own numbers
Funding Readiness Quiz → Score yourself out of 100 and see which funding is likely to fit.