For Entrepreneurs: Financing Your Business’s Growth by C. Lawrence "Larry" Thomas he first step is to plan, in writing, how, when and why you will grow and how you will finance the growth. As you get started with the planning, some questions are in order. First, how much do you actually have to grow to provide the business income necessary for the lifestyle you want for yourself and the others who depend on you? Further, is your business ready for growth with the appropriate infrastructure, management, employees and systems?
T
As the plan is written, the timeline for that plan and its forecasted rate of growth should be realistic and achievable. This is no time for wishful thinking. Forecasting growth is arguably the hardest part of the project, unless you can find similar companies and evaluate their growth strategies and results. Even with this input, there are lots of variables to consider. Erring on the conservative side is best. Identifying the method of financing growth is the next step. Basically, there are two types: debt financing and equity financing. Debt financing must be paid back with interest. Further, loans come with conditions (called covenants) that require management’s attention and compliance. Regular financial reporting to the bank is an example of a covenant. Additionally, a bank loan will most likely require the personal guarantee of the owner(s). Approval of the guarantee(s) involves evaluation by the bank of each owner’s personal finances. If a bank loan is impossible, other non-bank lenders may be interested. Generally these lenders focus on “accounts receivable” lending. Some will consider other assets. Your banker should be able to give you a referral to alternative lenders if the bank can’t make the loan.
Equity financing is not repaid. Rather, investors pay in capital in exchange for an ownership interest in the company. While giving up equity may be less desirable to the current owner(s), it may be necessary and advantageous, especially if the new investor also brings new expertise to the enterprise. Planning for growth should be done well before the financing is needed. The written growth plan is an essential tool to use to explain what you want to do and why. Your bank should appreciate planning at this in-depth level. We do at Independence Bank. Our experienced bankers will use the plan, as well as other financial documentation, to develop a proposed financing structure necessary to fund your business’s growth. That’s part of the Power of Independence.
C. Lawrence “Larry” Thomas is First Vice President and South County Regional Manager of Independence Bank. The South County Regional Office is located at 32291 Camino Capistrano, Suite A in San Juan Capistrano. Larry can be reached at (949) 373-1578 or visit www.ibankca.com
JUNE 2014
18
SOUTH COUNTY MAGAZINE