The growth of a business can be categorized in roughly five stages; each stage brings new financing challenges and opportunities for investment. There are several ways to get financial support at various points of growth, and what’s right for one merchant might be unsustainable for another business owner. There are many paths to success for businesses; here are some of the most common, organized by each growth stage.
During the START phase, most business owners are bootstrapping their way to the next stage of growth. Bootstrapping means you are building the company using nothing but your personal savings and, hopefully, cash from your first sales. “More than 80% of startup operations are funded by the founders' personal finances; the median in start-up capital is about $10,000,” reports Investopedia.
In venture capitalist terms, this is also the “pre-seed” stage of financing. Merchants looking for pre-seed capital will draw from personal savings, friends and family members, and raise money through crowdfunding campaigns. Until you’ve verified that your business idea is something customers want, it’s generally not a good idea to take out a loan. Likewise, angel investors and venture capitalists will want to see some early business results before participating in a funding round.
During the RUN phase, your business will be in the seed phase of financing. In the venture capital world, the seed round is when business owners gather capital to get things up and running. Some venture capitalists and other investors may be interested in investing in your business at this stage, but there are a number of ways to get a quick injection of cash:
Angel investors: An angel investor offers financial backing to small startups in exchange for ownership equity.
Equity crowdfunding: Your business raises capital by selling securities, such as equity in the company and revenue shares.
Grants: Apply for a grant from federal and state agencies, as well as some private companies.
Micro-lenders: These very small loans, usually less than $50,000, are offered by individuals, not traditional lending institutions.
For most businesses in the stage, it’s too early to go for an SBA loan. The qualifications for an SBA loan include a certain number of years in business, a Dun&Bradstreet 80+score and at least $100,000 in annual revenue.
Financing options in the GROW phase could include the following:
Venture capital, Series A: A Series A investor wants to take your business revenue into the millions. According to Investopedia, the Series A round consists of anywhere between $2 million to $15 million in funding.
SBA loan: It’s likely you’re ready for an SBA loan at this stage. Read more in our complete guide to SBA loans.
Short-term business loans: If you just need extra cash for a big equipment purchase, for instance, consider a short-term small business loan that can increase your working capital.
Bridge loans: Like a short-term business loan, a bridge loan can give you working capital while you’re waiting for more long-term funding to come. Read more in our guide to bridge loans.
Companies that have more than $35.5M in revenue are categorized as a mature company and are no longer a small business. At this stage, your biggest challenge will be controlling your substantial finances. Some businesses at this stage choose to offer an initial public offering (IPO). To go through that process, you will need roughly $100 million in revenue. Reaching this level of success takes years of hard work, a great idea and plenty of funding help along the way.