Managing through the business lifecycle: Growth
Move a young company forward.
All your hard work and planning begin to pay off as your business grows. However, the stage of early growth is also a balancing act between investing just the right amount to capture opportunity, and the risk of stretching yourself too thin.
The 5 Cs of credit*
As your business becomes more established, your success may make it easier to secure a loan or line of credit. Long before you actually apply for financing, you should know what considerations can go into a loan decision.
Virtually all lenders judge a borrower's creditworthiness using some version of a system known as the "5 Cs of credit." While the definitions vary, it's a good idea to understand the basic concepts — both to know where you stand, and so you can present the strongest possible application.
Credit history. How you've handled credit obligations in the past helps indicate what a lender can expect in the future. Business and personal credit histories are both relevant, as is information about any other outstanding debt.
Collateral. Sometimes called security, personal and business assets (such as investments, real estate, equipment, and cash) can offer a backup source of repayment to the lender.
Capital. The more of your own money you have invested in the business, the more comfortable a lender will be that you're committed to its success. Assets that can easily be turned into cash offer additional reassurance that your business can survive unexpected setbacks.
Conditions. Everything that affects your ability to repay a loan falls into this category. Conditions specific to the business include the purpose of the loan and your own experience and qualifications. Industry and economic trends, customers, competitors, and regulations are all examples of external conditions.
Capacity. Your ability to repay is the final, critical measure. Profitability and cash flow are essential components. A lender will want to see in detail how your business will generate enough cash to repay the loan along with any other commitments.
A plan for growth
Before you make any big changes, you should define exactly what you’re planning and why by making a growth plan. What is the goal and the strategy to reach it? Has your business plan evolved to keep up? And most importantly, what kind of financing will you need to get there?
Depending on your business, growth may mean selling more of your core offerings, adding new ones, reaching new customers, or a combination of approaches. You may need additional cash to pay for product development, inventory, marketing, equipment, personnel, or facilities. A potential lender will want to know:
How much money you'll need.
How it will be spent.
How it will help you succeed.
How and when you expect to pay it back.
In addition to these specifics, lenders typically look at a range of factors concerning you and your business.
Q: How do I make sure not to overstretch my resources as my business grows?
A: Be realistic about what growth will cost. Project your cash flow situation well into the future, and upgrade your funding options to support it. Also, be aware of the risks that success can bring. If things go better than planned, can you support an unexpected surge in business — both financially and in serving your customers?
Q: My business is growing rapidly, and I'm short-handed. Should I hire staff?
A: Hiring employees is an exciting step, but also brings new legal, financial, and management responsibilities. Think carefully about what kind of business you want to be before you take the plunge. Hiring on a contract basis can help you stay flexible, but be sure you understand the legal guidelines involved in hiring people as contractors rather than employees.
Key advisors: your customers
Some of your most important business advisors may be your customers, but you won't know what they have to say until you ask. A customer survey is a great way to do so. To get a strong response, make it quick and easy, and consider sweetening the deal with a discount or other incentive.
At its core, a growth plan identifies an opportunity and outlines how to capture it. Below are some tips to help you explore the possibilities for your business.
Consult with industry professionals. Seek out people with relevant industry and business experience, and include them in your planning process.
Tap into new markets. Consider whether you can sell more of your current offerings by reaching out to new groups of customers.
Grow your offerings organically. Look to your customers, staff, and industry peers for ideas about potential new products or services.
Go global. Think beyond borders to find customers who are hungry for your product or service. Use the Web and social media to reach distant markets.
Discover more Wells Fargo resources
Find out more about managing cash flow and credit.
Read more about the business credit lifecycle.
*All financing is subject to credit approval. For SBA loan products, SBA eligibility is also required.