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How to finance a business at different stages in its lifecycle

How to finance a business at different stages in its lifecycle

January 18, 2022
Deborah Edwards

Like a child, your business will take many forms as it grows, develops and matures. And like a child, the needs of the business will change over time, often requiring an injection of finance to speed up that growth. Other times, finances may be required to stabilise or plug a gap, particularly during lean or unexpectedly difficult times. The financial support that is available will differ according to how established the business is. Finance providers will often view the business in terms of risk and reliability. This blog looks at the commonly described different stages of a business and where to look for financial support.

Development / Launch Start Up

In the early stages, both your business and you as a leader of that business is an unknown quantity. Without a proven track record, risk will be at it's highest and it therefore follows that it is this stage that is often the most difficult to borrow money from commercial sources. This is the time when most business finance comes from the business owner itself, via a personal loan (either from savings or a loan secured to the owner) and from friends and family. When loans (and gifts if you're lucky) are given at this stage, it is usually weighted on the credibility of the owner, rather than the strength of the business itself. With that in mind, it's really important that cash is used wisely at this stage as frivolity or recklessness can also lead to upset in the relationships with the people that support the entrepreneur in the first place.

If you use this sort of finance, be very clear with yourself or the friend or family member with regards to expectations for return. Is it a loan or a gift? When do they want it back? Will you have a formal agreement and if it all goes wrong are they prepared to risk it or will you reimburse them another way?

Make sure that you have a clear plan with how you will use this money to get your business off the ground. It might seem a lot at the beginning, but it's surprising how quickly it can go if sales aren't as fast and furious as you first hopes or costs are higher than you imagined.

Rewards based crowdfunding is also worth considering here via companies such as Kickstarter or Crowdfunder . By letting the crowd know that you are opening a business, you can attract pledges which are exchanged for your product or service once it's up and running. This is not a loan and does not give away equity but you are expected to come good and deliver on the promise to the pledger.

Growth / Expansion Stage

By now, your business will have established a bit of a track record. Whilst the risks are still significant, the opportunities are more tried, tested and apparent and so the opportunity for you to receive funds from an independent source are increased.

Bank overdrafts may become available (be careful as these are expensive and can be recalled at any time. Often, once you are in an overdraft, they are hard to get out of and so should only be used to plug dry periods, rather than as a source of permanent finance.) Bank loans over a term may now be an option, but attract interest and of course, repayments.

One more recent source of finance is revenue based financing which is where an organisation is lent money and repaid out of sales. Typically, different rates of interest are applied according to how the funds are spent, with a preference on marketing type spend. Typically, a lender will want a business to be generating at least £10,000 in sales a month, but this is not always the case. To find out more, look at Uncapped or Out.fund

Equity investment is a good option to explore if your growth requires significant financial injection. This form of finance is an exchange for a portion of ownership, available to limited companies. Attracting the right investor who shares your values is important as it's a relationship is tied, usually for years. Whilst tax relief for their investment is available, investors will eventually want their money back and so you must operate with your investor in mind. Repayment will not typically be until the business is flourishing, but it may also be sold to release the funds, so be prepared to relinquish yourself from emotional ties! This can be done directly with an investor or en masse via a crowdfunding equity platform like Crowdcube or Seedrs.

Organic finance, achieved by reinvesting profits from sales can help to grow a business. This route is often slower and steadier, but does not have interest and repayment that other sources have.


This is the stage of business that is often considered the least risky and therefore the easiest to get an injection of finance. Typically, all of the previous options in the earlier stages are available to it. Longer term secured investment is available, as is invoice financing. Invoice financing is where money is introduced to the business secured on outstanding invoices from customers. When customers pay, you repay the loan. Beware as this is an expensive way of financing.

Of course, there are other factors which will come into play no matter how old your business is in and these are to do with the wider environment. Factors such as volatility of the economy as well as the specific industry that you operate all play a part in the appetite to give money.

The trick is to think about what you are trying to finance. Ask yourself, is it a long term cash requirement or a short term need? That decision will guide you towards the right kind of finance for you. Are you prepared to give away equity and can you afford to service a loan in the immediate future. Consult your accountant in any finance sourcing decisions as they will have a good idea of which route is best for you.

And my biggest and best tip!

The best time to ask for money is when you don't need it. So forecast your cash and profits to determine when you need to invest or plug a dry period - particularly if your business is seasonal. You will then showcase yourself as a business owner who is in control and one that is considered less risky than others.