Growing a business is hard work and when it comes to small business funding, it’s important to understand the differences between growth capital and working capital, and how the two work in tandem to propel a business. The path ahead for a small business is never clear-cut. Markets shift, consumer demand waxes and wanes, and talent can be hard to come by. When a growth opportunity arises, the small business owner usually needs access to cash to seize the day.
If you’re dealing with business growing pains, here are some of the best small business funding options to help you scale.
Working Capital vs. Growth Capital—What’s the Difference?
Working capital is defined as the current assets of a business minus the current liabilities which determines the daily operational budget. Growth capital, on the other hand is the cushion to ramp up and expand your business in a sustainable and long-term effort to achieve scale. Typically, this type of small business funding can provide cash for:
- Adding additional franchises.
- Buying equipment.
- Research and development of new products.
- Sales and marketing initiatives.
- Facility expansion.
Typically, growth capital is a cash infusion not designed for daily or recurring expenses. Instead, it gives your company a needed boost to fuel growth. So, how does this type of small business funding work?
Small Business Funding Options for Growth
There are many ways to fund a small business. Popular options include loans from the SBA, traditional bank loans, angel investors and even crowdfunding. But one of the most innovative sources of funding comes from your retirement plan. If you have money in a qualified retirement plan, rollover funding is a way to invest in your business without accruing the risk that comes from a traditional loan. Known as a ROBS, or Rollover as Business Startups, this funding is a particularly important resource for the small business owners turned down for conventional lending from banks. Because this isn’t a loan, there are no repayments. You don’t need perfect credit or collateral for 401(k) funding. It allows you to pull money from your 401(k)/IRA or other qualified retirement plan without paying upfront taxes or early withdrawal penalties.
An SBA loan offers traditional lending at a fraction of the cost of a conventional loan. The SBA works closely with approved lending agencies to back these loans, which offer lower interest and longer repayment terms. This marks SBA lending as some of the most attractive for small business funding. Some of these loans can even be combined with other types of financing (like a ROBS plan, which can be used as the cash injection) to make sure you have the cash you need to drive growth.
At Benetrends Financial, we understand your growth goals. We have experts in ROBS and SBA funding, and we’re standing by to help you with small business funding. Download Innovative Funding Strategies for Entrepreneurs to learn more about funding opportunities that may be available to you.