Growth
Financing

Key facts at a glance:

• Growth financing is usually needed by companies that have outgrown the start-up phase and are tackling new challenges.

• Financing growth purely through equity makes companies dependent in the long run and reduces the influence of existing shareholders.

• The financing is needed to advance-fund orders, expand locations, and adapt structures, processes, and personnel to growing demands.

• There are various options for financing growth. However, raising debt capital is not always easy for young companies.

• In addition to venture debt, business loans from online platforms are increasingly becoming a solution for growth financing.

What Is Growth Financing?

"Growth financing" refers to a type of loan that is particularly needed by rapidly growing companies. These are typically young firms that have successfully completed their start-up phase and are entering the next stage of development. They are referred to as "scale-ups". However, growth financing can also be suitable for established companies that are in an expansion phase.

Growth can occur organically — through an actual increase in the size of the business, its workforce, order volume, and revenue. There is also inorganic growth through the acquisition of other companies. The latter is usually pursued by companies that have been on the market for some time and want to expand their influence.

Regardless of how growth occurs, however, financial resources are typically needed that cannot be drawn from regular cash flow. This is where growth financing comes in.

When Do Young Companies Need Growth Financing?

As start-ups, companies mostly rely on venture capital, funding programmes, or shareholder funds. At a certain point, however, a certain size and market position have been reached. Then the available funds are no longer sufficient.

The existing shareholders typically also do not want to raise additional equity, as this would involve giving up additional shares and thus influence over the company's development. Accordingly, debt capital is to be acquired.

Due to the usually short company history and the predominantly not yet profitable operations, it is difficult for these companies to obtain traditional bank financing. This is where growth financing comes in.

Advantages of Growth Financing

Given a young company's sufficient equity base — for example through a committed lead investor — growth financing through debt capital is usually possible. There is no dilution of the existing owners' shares, the company remains capable of acting and independent, while simultaneously having the necessary funds for further growth. In this way, investments can be made, market share secured, and strategies implemented.

The time factor plays an important role, as companies are usually under high market and development pressure. Financing in the growth phase must therefore be able to provide quick solutions for emerging challenges.