Every organization should be aiming to achieve growth, and this is a particularly important concern for startups that want to scale their operations consistently.
You can’t make something from nothing, which is why businesses need capital to get the ball rolling and build momentum over time. This is where growth financing options come into play. So what is it exactly, and to what extent can you finance the growth of your startup using it?
A quick overview of growth financing.
Growth financing can also be described as revenue-based financing, which essentially allows you to upfront your annual recurring revenue (ARR) and make it available right now, rather than forcing you to wait weeks or months until your end-of-year earnings are accessible.
This is basically a way of reinvesting in your business based on expected ARR, accelerating the process of pursuing innovations, acquiring new resources and pushing the boundaries of your business to give it the competitive edge.
Tip: carefully review your financing options.
Choosing a growth financing provider which has a track record for serving startups effectively is sensible, as packages will be generous and payments affordable.
By looking outside traditional funding infrastructures, entrepreneurs can fuel growth with financing that is more flexible, adaptable and easy to access. You should still work with a reputable revenue-based financing provider, of course, but there are plenty of potential sources out there that fit this description.
The scope of growth financing products.
As this type of package is predicated on ARR, the amount you’ll receive will be based on a percentage of this.
The exact proportion is dependent on a few factors, such as the terms of the provider, the nature of your business and the industry it occupies, your track record for ARR to date and so forth. So while such funding is conditional, you could receive anywhere up to 60 percent of your ARR as soon as the agreement is approved.
Because this is a percentage-based financing option, it could mean accessing several hundred thousand dollars from your ARR ahead of time, or it could be into the millions. Such a model is obviously appealing to startups that have already managed to make major headway, but it also scales to accommodate smaller firms as well.
We have already discussed some of the benefits of growth financing options, but one thing that hasn’t been mentioned yet is that this style of startup funding lets you avoid diluting your equity in the business you are building.
This is a positive both in the short term, and further down the line, as it allows you to retain control, rather than being at the beck and call of outside investors who might not share your ultimate vision for the organization.
Furthermore if you pick the right funding provider, you can tap into a wellspring of expertise and guidance that will assist you in the decision-making processes that will push your fledgling company in the right direction.
Lastly, speed is of the essence here, as of course by bringing forward your access to your ARR through a growth financing product, you won’t have to wait around to give the green light to ambitious new projects and initiatives.
Growth financing is just one of the funding routes that your business can take, and if you have not considered it so far, now is the time to carry out additional research.
Obviously you should avoid rushing into any deal, but if you anticipate healthy ARR and you need to upfront your revenue, growth financing options are arguably the best options around.