To have a healthy business, it is essential to make the right capital choices because they will have a long-lasting impact on the overall growth of your company. However, jumping blindly into a financial deal will be detrimental for the business.

Before proceeding to get the best financing option for your company, here is a checklist of points that you must consider.

It is, therefore, essential to make a calculative decision while raising funds for your business.

  • Usage of funds:One of the primary questions you must address i.e., where will you use your fund? Usually, start-ups are looking for “working capital” that can help them meet the short-term needs and maintain operations like making payroll, acquiring inventory, needing a cash cushion during the gap months while you wait for customers to pay you, etc. For all such needs, they turn towards short-term loans, credit cards, lines of credit, etc. On the other hand, if a company wants to identify growth milestones and plan for the future, it would require investing in the “growth capital,” which will eventually provide fuel to fulfill longer-term goals and strategic initiatives. Entrepreneurs seeking growth capital can go for Term Loans that are repaid with a fixed amount in the form of recurring payments over a predetermined time frame. Some lenders also provide a “forward commitment” on top of the term loan. The former allows the businesses to draw additional funds as they need them at a later time. There is another great option for the growth capital; Revenue-based-financing (RBF), that offers a flexible repayment schedule to accommodate the volatile conditions of your monthly net revenue.
  • The total payback amount:If you begin comparing the growth capital options, you’ll realize that different lender have different terms. To determine the actual cost of capital, you first need to calculate the all-in cost, i.e., the full amount you will be required to pay back and the timeframe you need to pay it back. Also, factors like:
    1. Annual percentage rate (APR),
    2. Time value of money (TVM), and
    3. Fees, both the explicit and hidden ones.
  • Please choose the right partner:It is essential to bring on the right financing partner for your fundraising journey. Choose a partner that will offer the proper funding structure based on your needs. Plus, who can grow with you and provide more connections, add value, and introduce you to other capital sources. A quick checklist to choose the right partner:
    1. Always check the lender’s track record in assessing risk.
    2. Ensure that they prioritize incremental growth.
    3. Does the lender have an additional capacity to grow with your company?
    4. Is the lender stable and in a position to support your ongoing capital needs through the volatile market conditions like recession and recovery?
    5. Also, know about their reputation with other entrepreneurs in the community.

Is your lender willing to provide guidance, mentorship, and networking within the industry?

Comments

TOP