3 Expert Tips to Finance Business Growth

Sourcing non-dilutive capital for growth is challenging, so here are 3 tips from Financiario to maximize your success.

1.Subordinated debt may be more expensive, but it's likely only there for a few years, it gets the job done, and it doesn't dilute your equity.

Problem: You're growing fast and need to scale your operating capacity to capture more market share.

Solution: If you're investing to scale your business infrastructure, you likely won't have cash flowing back into the business in the short term to repay any debt. A 3-5 year subordinated loan will patiently wait for your business to generate the cash flows that will ultimately repay the debt, and will charge you interest only during that period. A lender providing this type of capital will need to be compensated for the higher risk they take while they wait for you to execute your growth plan. This loan will be more expensive than your average bank term loan, likely between 12%-18%. Once cash flows become sustainable at the business's new operating capacity, the patient debt can be swapped out for a regular principal + interest loan and you're back at a 4%-6% borrowing cost.

Subordinate debt financing is heavily reliant on management capabilities, willingness , and track record to execute the growth plan that ultimately generates the repayment cash flows. It also comes with several complexities, including inter-creditor agreements with senior lenders, advanced financial forecasting, and regular reporting. Financiario has extensive expertise helping high growth companies plan, negotiate and manage their financing requirements, both senior and subordinated, so reach out to [email protected] to learn how we can help you scale your business.

2. Purchase order financing gives you the flexibility to accept large sales orders knowing you have the capital required to deliver.

Problem: You have an incremental sales opportunity for a large purchase order, and you're concerned with covering your costs while you work on it.

Solution: If you received a large purchase order that would tie up a significant portion of your limited capital for months before the sale if completed, you may be hesitant to accept it. You would be challenged to access a traditional bank line of credit margined against inventory or receivables, so unless you could negotiate a large advance payment you likely wouldn't have the capital to make that sale. If you're an exporter, or a business looking to export, or a business whose products feed into an exporter's supply chain, your bank could however authorize a special type of loan that leverages the support of the Canadian Government through one of its crown corporations, Export Development Canada. This would greatly reduce the bank's credit risk so in turn it could be willing to lend out the capital you needed to accept the purchase order. You would be able to make the sale and delight your customer. And your business would bank the incremental profits from that sale to use as growth capital, while enjoying a better track record in the market. Win, win, win.

Working with Export Development Canada's solutions can be complex, but Financiario has both the expertise and the successful track record to support you by making it easy for your bank to say yes. Reach out to [email protected] if you want to learn how we can help you grow your business with purchase order financing solutions.

3. Lines of credit can be structured to allow you flexible access to financing, but you need to understand your requirements and plan ahead.

Problem: Your business financing needs keep increasing but your line of credit can't seem to keep up.

Solution: Your business is growing and needs increasingly more access to capital, or perhaps it's highly seasonal and has a disproportionately high inventory balance for several months. If these are your circumstances, you may be struggling to access your line of credit to its full limit, or you may not even be able to access a line of credit large enough for your needs. With appropriate forward planning and budgeting, you could negotiate to have your line of credit include seasonal accommodations for higher borrowing needs during your stock up season, or to permanently step up in size in line with your growing revenue base and working capital assets.

Financiario helps growing Canadian small and medium enterprises plan, negotiate and manage their access to capital to support growth, so reach out to [email protected] if you want to learn more.

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