Navigating Business Growth: A Guide to Funding Throughout Your Lifecycle

Businesses often find themselves at a crossroads where financial support becomes crucial. Whether you’re just starting or have already established your presence in the market, securing funding is a pivotal factor that can influence your trajectory.  

Around 48.4% of small businesses fail after the five-year mark, primarily due to a lack of knowledge in securing the funding they need. This guide will aid in pointing out the pitfalls and funding opportunities at each growth stage to avoid this. 

Stages of The Business Lifecycle

The business lifecycle comprises several phases: startup, growth, maturity, and transition. Each stage requires specific financial strategies and lending options to maintain momentum.  

Startup Phase

During this phase, securing initial capital is crucial. Without proof of cash flow, businesses in this phase will have fewer options. Because of this, some startups will find themselves victim to ‘predatory lenders’ who can quickly get them the money they need but will eat away at their profits with up to triple-digit interest.   

Options for those in the startup phase include personal savings, friends and family investments, angel investors, and venture capital. Government grants and small business loans from the Small Business Administration (SBA) can provide valuable support to eligible startups. 

Growth Phase

As a business gains traction, funding needs evolve, and more funding avenues, like alternative lending sources, become available. Examples of alternative lending sources are invoice factoring and asset-based lines of credit. Government contracts can also serve as collateral, enabling a business to secure favorable lending terms. 

Maturity Phase

At this point, sales begin to level off, and the best avenues for growth include traditional lending, equity financing, and a thorough evaluation of growth opportunities.  

In both the growth and maturity phases of a business’s lifecycle, bank financing is offered to companies based on the ability to see sustainable growth.  

Transition Phase

During this phase of the lifecycle, businesses often come to a crossroads where they decide on the next big step to maintain growth. One choice they have is to reinvent themselves to diversify based on their proficiencies. They may also want to merge with another business. One of the more unattractive avenues is to get out of the business as it is declining, which can happen due to a lack of growth milestones throughout the lifecycle and not having a growth plan in place.   

Ensuring & Sustaining Your ‘Bankability’

In a recent webinar with Teresa Moon of Parabilis, Teresa shared that ‘Bankability’ is the level of success a business wants to achieve regarding its lending partners. Understanding one’s own “bankability” and evaluating whether the business’s trajectory aligns with financial institutions’ requirements is crucial in securing funding. 

When attempting to gain funding from banks, there are some stipulations a business will come up against. Most banks will look for 12-24 months of sustainable growth before looking at a business’s financial documentation; turning a profit only sometimes means a business is profitable. One of the ways to find a business’s profitability is to hire a CFO who will look at a business’s future cash flow.  

While achieving bankability is a significant milestone, but it is equally important to sustain this status for the long term. A business’s ability to keep track of its bankability involves a combination of financial discipline, communication, and adaptability.   

Financial Discipline

Financial discipline means a business is thoroughly keeping track of its financial dealings, consistently paying bills on time, and managing its debt responsibly. Demonstrating a track record of responsible financial management enhances a business’s bankability. 

Communication and Relationships

Sharing financial and contracting details consistently with their bank or bank contracting officer is critical for a business to remain bankable. One of the most important aspects of this is constantly communicating to understand if they can keep up with the business’s growth.  

Risk Management

A business must be prepared to handle unexpected challenges. Maintaining a buffer or contingency plan in their financials shows their ability to navigate uncertainties without endangering their bankability. 

Crafting a Growth Plan

To start crafting a growth plan, it is essential to deep dive into market trends and regulatory shifts. By grasping its sector, a business can better understand its funding requirements.  

At the heart of this growth plan, it is important to make meticulous financial projections. Every growth stage, from the developmental to the maturity phases, should be examined while factoring in the potential for contingencies and expansion-related costs.  

Furthermore, rather than relying on a singular funding source, it can be helpful to embrace diversification. Remaining diversified in regard to funding sources can help with risk mitigation. In addition, by tapping into a mix of traditional loans, grants, and alternative financing avenues, a business can protect itself from potential disruptions.  

Sustainable Success

In summation, securing funding is not a one-size-fits-all process. As your business evolves, so should your financial strategy. By understanding lending options at each growth stage, evaluating your “bankability”, and crafting a growth plan, you can position your business for success.  

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The content discussed in this blog comes from a member-only webinar hosted by Teresa Moon of Parabilis. Teresa Moon, an expert in funding, guided participants through the landscape of funding opportunities, shedding light on the key aspects entrepreneurs and business leaders should consider as they plan their financial journey. 

Monthly membership webinars like these are reserved for NSTXL members only. To take advantage of these monthly webinars and the other benefits of becoming an NSTXL member, learn more about membership here.