Checklist: The Five Keys to Financing Growth


Every company should have a strategy in place to finance growth from day one, with at least a rough outline of how you intend to do that included in your business plan. While that might sound self-evident, a surprising number of companies fall short here. “The reality is that most businesses do not have a plan to get themselves ready for the capital they’re going to need as they grow,” says Patricia G. Greene, the Paul T. Babson Chair in Entrepreneurial Studies at Babson College. “The need for financing dawns on them, and they have to scramble to get the right business plan in place.”

Historically, inadequate liquidity - lack of access to needed capital - has been one of the greatest roadblocks to success. John N. Hickman, regional director of the Maryland Small Business and Technology Development Center, Eastern Region and an adjunct professor of management at Salisbury University’s Franklin P. Perdue School of Business, says early preparation, long-term vision, and skin in the game can help overcome that roadblock. “Most of the small businesses we work with do a good job of keeping an eye on their short-term financing, but lenders want to see that you’re on top of the two- and three-year horizon. When you’re looking to finance new equipment or an expansion project, a good injection of your own money boosts a potential lender’s confidence and may get you a lower rate,” he says. 

You don’t need a degree in finance to get on the right track to financing your business’s growth, but common sense and good preparation are important. Pay attention to these checklist items, and you’ll be well on your way.

  • Have a complete business plan. Loan officers and equity investors alike are most interested in one document: your business plan. A good one should include all relevant financial information, but it should also tell a compelling story about your business, your vision for it, and how you plan to get there. This is never a “one and done” proposition, Hickman stresses. You have to look at it at least once a year, but twice is better. Check your progress against the goals outlined in your plan. How has the environment changed? Are your key customers who you thought they would be? Are you doing better or worse than expected? Why? “Look at the financials too, of course, and make whatever adjustments are needed in all areas,” he advises.

  • Match your financing needs with the correct financing product. Be clear about what your needs really are. Do you need cash to expand your business, to make it through a downturn, or to purchase equipment or property? Each of those needs is generally best served by a different solution, (e.g., a line of credit to weather a rough patch or a term loan to buy equipment). It’s important to structure debt so it follows the term of the asset it’s associated with, Hickman suggests. For instance, if you expect to put high mileage on a work truck, financing it with a five-year loan might be a bad idea. “If you need a new truck in three years, you could be stuck with a fully depreciated asset and be underwater on a loan that still has two years to go,” he says.

  • Manage risk carefully. Make sure you have a solid business case for taking on debt. Understand what you’re putting on the line. What will it mean to your business if you can’t make loan payments on time? If you’re putting up property or equipment as collateral, could your business survive if you had to default? “Unless you are a very mature and profitable business, you will almost certainly be required to provide a personal guarantee,” Greene notes. “If that means putting up your home or other major assets as collateral, you need to consider the potential impacts not just on your business, but on your personal life as well.” Risk management is particularly important for companies expanding outside their core business into a new area, Hickman warns. Planning and break-even analysis are critical, especially if you are relying on cash flow from your core business to cover debt incurred by the new venture.

  • Maintain the desired degree of control over your business. Some sources of financing, such as venture capital, require you to give up an ownership stake in exchange for funding, but how much is too much? The answer is, it depends. The idea of giving up more than 50 percent and putting ultimate control of your business - and your future - in someone else’s hands is counter-intuitive to some entrepreneurs. But for others, having multiple equity investors may present the best path to growth. It’s possible to retain control of a business with less than a 50 percent stake as long as your equity position is larger than any other single stakeholder’s. “It really depends on what you want to do,” Greene says. “The person who starts a business isn’t always the right person to run it as it grows, and some people launch a business fully intending to sell it at a certain point.”

  • Find the right partner. Lenders and investors expect to earn a return on their money, but the best sources of financing should demonstrate a clear understanding of your goals and the challenges you face in reaching them. “We always say that if all you get is the money, you didn’t do it right,” Greene quips. “It is absolutely about gaining knowledge and building a network.” Choose a financial partner who is committed to your success and can provide advice and guidance to help you achieve it. For example, a knowledgeable lender can help you decide when it makes sense to lease equipment rather than finance its purchase with a loan. “It’s important to look for a bank that understands small businesses,” Greene says. “There’s not much training around small business for bankers, CPAs, and other finance professionals in colleges and business schools. Someone who really understands how small business works is a huge resource.”

To learn more about getting capital to fund your growth, call a BMO Harris Small Business Banker at 1-888-340-2265, or visit

Last updated: Sep 1, 2013