Scaling and growing a business
What are the challenges to growing a business?
Whether it’s opening a new location, expanding product lines, or increasing production capacity, growth requires capital.
Types of challenges that may trigger the need for additional funding include:
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Expansion
Whether it’s opening a new branch, moving to a bigger office, or establishing warehouses, scaling operations may mean expanding physical infrastructure.
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Hiring
Recruiting skilled individuals, from top management roles to frontline staff, could be a significant expense.
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Production
Scaling might mean producing in larger quantities, necessitating more raw materials, machinery, or even a larger production facility.
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R&D
Funding can be channelled into R&D to improve products, services, or develop new offerings that meet evolving market demands.
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New markets
Tapping into new geographical areas or demographic segments may require additional research.
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Technology
Technology investments could optimise operations, improve customer experiences, and streamline processes, but may be costly.
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Risk
As the scale of your operations increases, so does the scope of potential risks – funding can act as a safety net, helping businesses navigate unforeseen challenges.
Finance products that can cover these costs include:
Initial Public Offering (IPO)
An IPO is when a company offers a portion of its shares to the public for the first time.
An IPO is usually carried out by established businesses that can go from being privately owned by a limited number of investors to having shares available for purchase by the general public and being listed on a stock exchange.
Although IPOs are often associated with large and established businesses, younger and smaller businesses with low revenue but significant growth potential or unique intellectual property (IP) can also attract investors using this method.
In the UK, AIM is the market for IPOs by smaller, growing businesses looking to scale.
For further advice, read a guide to how to tell if your business is IPO ready and an IPO checklist.
Equity investment
This form of finance involves securing funding from external investors in return for shares in your business.
There are various levels of equity investment tailored to different stages of a business’ growth. After the pre-seed and seed stages when a business first launches, companies looking to scale go through further rounds of funding known as series A, B and C.
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Series A
Series A funding is provided by venture capital firms, super angel investors, and institutional investors.
Angel investors are entrepreneurs or individuals with extensive business experience who invest their own money in early-stage startups in return for equity.
Venture capital firms use money belonging to large institutions such as pension funds, and as they require a significant return on their investment, they generally ask for a bigger stake in exchange. -
Series B
Series B funding is provided by venture capitalists and private equity firms.
Private equity firms raise capital from institutional investors like pension funds and insurance companies which they use to form a fund and invest in businesses. -
Series C
Series C funding is provided by venture capital firms, private equity firms, and corporate investors.
Grants
This is funding provided by public sector or private organisations that doesn’t have to be paid back.
Grants schemes are usually focused on factors such as a specific business activity, stage of business, sector, founder demographic and location.
Grant schemes vary in how much money you receive. For some, you’ll receive the full amount, whereas for others you need to match a proportion of the value of your grant before you receive it.
Application processes can be long and time-consuming, and there is no one-size-fitsall approach. Before applying, it is advisable to speak to the grant provider to find out what’s involved and whether you’re eligible.
Sources of grants include the government’s finance finder, the find a grant service and the websites of local councils.
Debt finance
This involves a business borrowing an amount of money or an asset that is paid back with interest over an agreed period of time. Common forms of debt finance include:
Loans
These can be secured, which uses an asset (such as property) from your balance sheet as security, or unsecured, which can be borrowed without using any business assets as security.
For unsecured loans, you often need to provide a personal guarantee that says you’ll pay back the loan personally if the business can’t.
As a result, unsecured loans typically have higher interest rates than secured loans.
Overdrafts
A line of credit on your business bank account that provides access to more short-term funding than your business’ own capital.
Unlike loans which have a fixed repayment fee, you only pay interest on the overdrawn amount.
However, the bank may charge an arrangement fee, and if you’re late or miss a repayment, you’ll be charged a fee that could affect your credit rating.
Overdrafts generally have a higher interest rate than business loans.
Find out more about debt finance.
British Business Bank plc is a development bank wholly owned by HM Government. British Business Bank plc and its subsidiaries are not banking institutions and do not operate as such. They are not authorised or regulated by the Prudential Regulation Authority (PRA) or the Financial Conduct Authority (FCA). A complete legal structure chart for the group can be found at british-business-bank.co.uk.
Whilst we make reasonable efforts to keep the information in this guide up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.
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Worth knowing
For businesses looking to scale, equity investment can drive growth. After the preseed and seed stages when a business first launches, growing companies go through further rounds of funding known as series A, B and C.
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