What translates into a successful business loan is a payback that exceeds the cost of the loan and a growth plan that will allow you to attain positive cash flow. It also means that you are not being overly ambitious when it comes to your growth plans.
Finally, a good business loan like a growth capital loan will come with flexible terms that allow you to utilize the funds in the manner you deem best for your company.
Let’s see how?
What is a Growth Capital Loan?
A growth capital loan is a form of financing that allows small to mid-sized growing businesses to expand. Unlike traditional business loans, growth capital loans are not repaid with interest. Instead, the money is repaid when the company exits an IPO or merges with another firm. The goal of this type of loan is to help companies grow and develop into successful entities that can stand on their own two feet in the future.
Growth capital loans are a lot like business expansion loans and working capital loans, except that they have the added benefit of being tied to your company’s growth, as opposed to its cash flow. With a growth capital loan, you can use the extra capital to invest in new technology, add to your workforce or expand your operations.
You can also use it to take care of unexpected expenses or simply to improve your operations. One thing is for sure: if your growth is tied to the loan, you will be able to create an environment conducive to business growth.
What is the Purpose of a Growth Capital Loan?
A growth capital loan is a type of business loan that is primarily used to meet short-term financial needs. It typically has a longer repayment period than traditional loans, meaning the lender will hold the debt for a longer time frame.
This type of lending is useful for business owners who are looking to purchase or upgrade equipment, cover operational expenses, buy inventory, fund increased marketing efforts, etc. There are many other reasons why loan applicants may use growth capital loans as well.
Moreover, a growth capital loan is intended for expanding a company to meet the demands of the marketplace. This type of loan can be provided by a banking institution or other private lender and can be used for a variety of purposes, including:
- More efficient production
- Purchase and improvement of property
- Purchase of new equipment and upgrading old equipment
Who Can Apply for a Growth Capital Loan and Who Should Avoid It?
Over the past few years, we have seen a major rise in the number of people who are willing to explore the option of getting a growth capital loan. But before you start filling out applications, it is essential that you know exactly what this type of loan entails and who can apply for it.
Regardless of whether your company is just starting off or you are looking to grow it further, it is important that you understand how a growth capital loan works and whether it is right for your business.
Growth capital loans are for people who have a successful and growing business but need more money to fuel that growth. For example, if you are currently running a $10 million business, you may be looking for growth capital to help you reach your next million. If so, you should consider growth capital funding.
On the other hand, if you are running a struggling startup business with no sales, or a business that has already hit its peak and is just trying to stay afloat for as long as possible, then getting a growth capital loan is not for you.
How to Qualify for a Growth Capital Loan?
The best way to qualify for a growth capital loan is to have an established business that has shown profitability for at least one year. One of the most important things that lenders will want to see in order to approve you for a loan is financials that show that your company has been successful.
Some lenders might give you the option of using your personal assets as collateral. This can be helpful if you don’t own any other assets or don’t qualify for traditional loans because of previous bankruptcy or other credit issues.
Over and above that, to qualify for a growth capital loan, you need to have a strong business idea, have the potential for rapid growth, be able to show the need for expansion, and demonstrate what you plan on doing with the funds. Another requirement is having an established business with proven success.
Getting approved for a growth capital loan is not easy. You need to provide documentation that shows how you will spend the money and demonstrate that you are already profitable or will become profitable shortly after receiving funds.
Myths About Growth Capital Loans
Growth capital loans are structurally better than other financing options. Businesses should consider applying for growth capital loans, instead of choosing a different type of loan. But is that really true?
Let’s take a look at this subject and find out the myths about growth capital loans.
Myth #1: Growth capital loans are more flexible
Oftentimes, businesses look for ways to finance their operations without applying for a growth capital loan. They assume that different financing options are more flexible. That’s not really true, though. In fact, growth capital loans are just as flexible as other types of financing options.
Myth #2: Growth capital loans have higher interest rates than other loans.
This myth has largely been created by uninformed financial advisors and experts who have little experience with growth capital loans. While there may be some exceptions, growth capital loans usually carry the same interest rate like any other type of loan of a similar size.
Myth #3: Growth Capital Loans are the only option available for growth capital
Growth capital loans are not the only option available for growth capital. There are also bonds and equity funding. Both of these options have their own pros and cons, but they usually have better rates than growth capital loans.
Usually, when you need a loan or funding for your business expansion plans, you would have to approach multiple sources of finance. However, Growth Capital Loan offers a simple solution to this problem with their one-stop-shop financing platform. The complete loan processing is done online and the loans are disbursed within 24 hours!