Growing your business to a household name is the dream of every entrepreneur. However, achieving this level of recognition requires more than just ambition; it demands strategic planning, resource allocation, and often, significant financial investment. Access to capital isn’t always easy to come by, however. In fact, a study by U.S. Bank found that eighty-two percent of small businesses fail because of cash flow problems, and twenty-nine percent run out of cash.

Without sufficient funds to invest in inventory, marketing, and infrastructure, even the most promising ventures can struggle to gain traction. Meanwhile, the right financing strategy can provide the resources needed to grow and thrive.

Securing the right funding product

Whether you are growing through retail, wholesale channels, ecommerce marketplaces, or your DTC website, being able to fund your growth is an essential part of being successful. There are many options to finance your production runs but not every one of them is the right option for every business. It’s important to ensure you fully understand the pros and cons of the funding solutions you may be considering.

Inventory Financing

Inventory financing can offer swift funding even for newer businesses or those with less-than-perfect credit, with funds typically available within days. The application process is simplified, especially with well-organized inventory records, and loans are secured by the inventory itself, reducing the reliance on personal or business credit history. You may even find flexible repayment structures where you do not have to begin repaying the debt until the inventory begins to sell. 

However, inventory financing entails added fees such as appraisal fees and origination fees, alongside potential prepayment penalties. Some lenders also may impose a minimum loan amount, causing delays and potential shortfalls for business owners.

Small Business Loans

Small business loans can be a fast, easy, and effective way to obtain financial relief. They expedite growth by injecting funds directly into the business operating account, eliminating the need to wait for slow cash cycles. Unlike seeking investors, loans maintain full ownership for business owners and offer flexibility in utilization without external influence. Loans, including SBA and bank loans will typically have longer repayment terms, going out to 10 years in some cases. This can help to reduce the monthly strain typically associated with other shorter term financing options. However, since lenders extend financial assistance based on the company’s ability to pay, they generally require an extensive application process and ask for qualifying criteria such as credit score and profitability.

Business Credit Cards

Business credit cards may be a great option for short-term flexible spending, especially when you don’t have cash on hand. They typically have an easy qualification process too and can help build credit, but can come with high interest rates when compared to small business loans. Meaning, if you cannot pay the balance each month, interest will accrue and these credit cards can cost more than you bargained for.

Invoice Factoring

Invoice factoring provides instant payment for goods already delivered while you await the payment of invoices. Approval for factoring is simple and relies on the creditworthiness of customers rather than the business itself, streamlining the process. Additionally, no collateral is typically required other than the receivables, providing businesses with access to funds without risking other assets. Invoice factoring may involve signing contracts for a minimum period, potentially increasing the overall cost. Furthermore, relinquishing payment collection control to a third party can be an unwanted step.

Purchase Order (PO) Financing

PO financing is a short-term funding option that provides an advance payment based on a Purchase Order from a customer or the business’ sales. Purchase order financing provides rapid access to funds, often within 24 hours, allowing businesses to fulfill customer orders promptly. With no loan structure, repayment is straightforward, as businesses settle the lender once customers pay their invoices, avoiding high interest rates and short repayment periods. 

On the downside, PO financing entails upfront fees, which businesses must pay before accessing funds, potentially causing financial strain. Additionally, a high-profit margin requirement, often around twenty percent, may exclude some businesses from eligibility. 

How to use funding to drive growth and profitability

Once you have decided which type of funding is right for your business, it’s time to use that capital to grow. From running more ads to launching new products, there are many ways in which you can use newly obtained capital to strategically scale your business. 

Purchase more inventory

Having access to additional capital allows small business entrepreneurs to purchase more inventory than they may otherwise be able to, especially during stages of rapid growth. While purchasing more inventory requires upfront investment, it can help improve cash flow management in the long run by reducing the need for frequent reordering and minimizing the risk of stockouts. This allows small businesses to allocate financial resources more efficiently and focus on other growth initiatives.

By having more inventory on hand, small businesses can ensure they have sufficient stock to meet customer demand, especially during peak seasons or promotional periods. It’s crucial that business owners purchase the appropriate amount of inventory and prevent stock outs to ultimately increase sales and customer satisfaction.

Increase your marketing budget

Investing in marketing initiatives such as advertising, social media campaigns, and content creation helps small businesses increase their brand awareness and highlight unique value propositions to target audiences. By reaching more potential customers and establishing a stronger presence in the market, businesses can increase sales and drive growth.

Small business owners can even use marketing funds to expand their store’s presence across new media channels. For example, Amazon sellers should not only limit themselves to Amazon ads. Many people start their product searches on Google, and by investing in Google ads, business owners can help drive increased traffic to their storefronts and broaden their reach.

Overall, it’s crucial that entrepreneurs not only know the best way to market their business but also have the funds to spend on these marketing initiatives.

Launch new products

Small business entrepreneurs can grow their businesses by using funds to launch new products. Introducing new products can attract different segments of customers who may have different needs or preferences. New products can help in expanding the customer base and reaching new markets, thereby increasing sales and revenue.

Additionally, launching new products provides opportunities for cross-selling and upselling to existing customers. Businesses can bundle new products with existing ones or offer special promotions to encourage customers to try out the new offerings.

Case Study: Home decor brand 

One home decor brand used capital to scale up from a small ecommerce business into a retail giant now selling on Walmart. With over $950K in sales in 2020, the brand was looking to continue its business growth and scale on both Amazon and its direct-to-consumer (DTC) site but needed more financial means to execute its ambitious plans. Turning to Yardline for funding solutions, they were matched with the right funding product for their business and secured the resources necessary to invest in inventory purchasing and expand their product offerings. 

The brand used its capital to successfully launch two new products at price points 26% lower than the previous weighted average, attracting a wider audience and driving sales volume. Three months after the initial advance, the brand achieved significant growth milestones. Their average monthly sales increased by 35%, surpassing the 17% average growth rate over the previous six months. Moreover, sales exceeded the forecasted pace by an impressive 26%, signaling the effectiveness of their scaling efforts. Ultimately, the funding allowed this home decor brand to meet customers’ rising demands and scale its small business to a respected Walmart retail brand.

Invest in capital to scale and grow

Scaling your business to become a household name requires more than just a great product or service—it demands access to capital and strategic financial planning. By partnering with a funding provider like Yardline, entrepreneurs can access innovative funding solutions to unlock the resources needed to propel their brands and become household names.