4 Scale-Up Financing Strategies to Fund Rapid Business Growth

Is your business prepared for a major scale-up opportunity? Here are four steps to ensure sufficient capital for rapid business growth.

Your business has successfully brought a product or service to market, and you have a proven, scalable business model. If so, you may have reached the scale-up phase, which the Organization for Economic Cooperation and Development (OECD) defines as a company that has grown an average of 33% per year over the last three years, starting with a minimum of 10 employees.

At this point, you might even have gained interest from large enterprise buyers. While such buyers can help you access economies of scale, they also mean you will need funding to support rapid business growth. Depending on your business, a scale-up will most likely require even more funding than when you first started.

Capital is crucial for a successful scale-up. Otherwise, rapid growth may deplete your cash flow and put your business in default. Lacking the resources to meet a large buyer’s demand can also impact your chances of securing future deals and damage your reputation.

As a supplier that is preparing to experience exponential growth, here are four steps to ensure you have sufficient access to capital.

4 scale-up financing steps

1. Conduct market and investor research

If you’re exploring equity investors for scale-up financing, investigate different investor types and how the market can affect investment opportunities. This isn’t just about researching investors that are relevant to your niche but is also about networking with individuals. Who are your potential investors? What do they value, and how do their values align with your business? Engaging personally with an investment network has the added benefit of providing valuable funding advice as you navigate the scale-up process.

It’s also helpful to keep up with market trends, such as emerging products and customer demand. Pay attention to factors such as timing and market events that may trigger investors to take an interest in your business. For example, you could pivot your product offering to adapt to a rapid change in consumer demand, as many businesses did during the pandemic.

At most, putting energy into market and investor research, as well as networking, can lead to funding opportunities. At least, you’ll be equipped to build a compelling pitch that is more tailored to prospective lenders’ requirements and values.

2. Communicate your growth plans strategically

Whether you aim to secure financing from equity investors, banks, public organizations or all of these, it’s important to consider what financiers care about when they evaluate your business. It’s usually not enough to have a one-size-fits-all business plan describing promising growth prospects. Instead, you should tailor the plan based on the lender’s key priorities and interests.

For example, banks want to know that you’re capable of making payments with interest and that you have liquid assets a loan can be secured against. In this case, it’s wise to come to the table with accurate and comprehensive financial forecasts and reporting that validate your reliability as a borrower and prove the value of your assets.

On the other hand, public funders may be more interested in your growth plan and its measurable impact on the economy, such as its likelihood to create jobs. Funders tied to research institutions will probably want to understand how your growth plan will support their research, while philanthropic organizations need a clear picture of how your business’s expansion can advance their core values and initiatives. In other words, consider your lenders’ unique priorities and pitch accordingly.

3. Diversify your financing sources for scale-up financing

Securing funds from a variety of sources is often more accessible and efficient than limiting your funding efforts to one lender, such as an equity investor. For example, you can diversify your funding by considering the following options:

• Bank loans, particularly asset-based loans that are easier and faster to secure.
• Business credit cards.
• Lines of credit.
• Loans from friends and family.
• Peer-to-peer lending, financial technology that facilitates lending without a bank intermediary.
• Equity crowdfunding, a government-regulated option that sources small funding amounts from a large pool of private investors.
• Public funds and state or local financing programs.
• Funding opportunities for women- and minority-owned businesses, as well as those with sustainability certifications.
• Supply chain finance, which involves a bank or fintech partnership to fund your suppliers’ invoices.

The key is to be resourceful and creative about where to find capital. For example, simple practices such as settling accounts payable on time will strengthen your relationships with your suppliers, potentially giving you more flexibility to negotiate supplier credit when the need arises.

If you plan on pursuing equity investment as a primary funding source, it can be helpful to balance this approach with traditional forms of financing such as a business loan from a bank. Knowing that a financial institution is holding you accountable for your debt responsibilities can be an appealing factor when investors are assessing your business.

4. Explore buyer financing and early payments

In your search for diversified funding solutions, you may find that your buyers are reliable and cost-effective sources of financing. This might mean negotiating point-of-sale payments or down payments with them. This is usually best approached with buyers that you’ve established strong relationships with, especially those that you collaborate with to develop unique products. To give you cash upfront, these buyers will need something in return — most likely, assurance that you can help them create innovative offerings that will put them ahead of competitors.

Another option is to leverage early payment programs offered by your buyers. Many enterprise buyers now facilitate early invoice payments with their suppliers using platforms such as C2FO’s Early Pay solution. Put simply, these programs enable you to request early invoice payments from participating buyers in exchange for a discount at a rate of your choosing.

For most suppliers, discount costs through these programs are competitive with traditional business loans and other financing solutions. But as with equity investment, you’re not taking on additional debt to access the cash.

The bottom line for scale-up financing

Landing business with large, global buyers is the ultimate goal for many suppliers — but scaling your business overnight requires a reliable source of working capital. Considering a variety of funding sources, networking and conducting due diligence before approaching lenders are all smart strategies when finding scale-up financing. However, if your business needs to access cash quickly and without acquiring debt, early payment programs are an effective way to unlock working capital during a scale-up.

Find your buyers in C2FO’s network to start requesting early payments today.