Access to capital across the four stages of a business journey

No matter how passionate you are as an entrepreneur, no business runs on enthusiasm alone. Access to capital is often viewed as being a challenge, especially during the early stages of a business journey, but it’s crucial at every phase — startup, growth, maturity and transition. Turning an idea into a profitable business typically requires funding, as does positioning that business for sustained growth.

Unfortunately, access to capital remains a significant concern for many business owners. As Bank of America’s 2024 Business Owner Report indicates, many owners worry about rising interest rates and the limited availability of credit, which can hinder their ability to secure funding when they need it.

“Fortunately, there are many people out there that want to help entrepreneurs in their community succeed,” says Maria Gonzalez-Blanch, managing partner of Crescent Ridge, a venture capital firm in the San Diego area. Here are some tips to consider based on business stage.

Startup

If you’ve come up with the idea for a small business or a startup, you’ll likely need to start it on the side — using income from a traditional job or tapping into your savings. Few backers will get behind a business that is still just an idea. Fortunately, many types of businesses can be started from home with little more than a laptop and mobile phone, while covering overhead with revenue from the business. Before seeking funding, make sure you’ve covered the basics—like business formation, creating a business plan and calculating startup costs. Visit the Start a Business Center for an overview of the essential steps. 

However, some businesses — like retail shops, restaurants or labor-intensive tech startups — do require more funds in the early stages to pay for a physical location, equipment, supplies or personnel. 

Here are some ways to kick-start the funding process:

Do your homework

“The best way to position yourself for financing in the very early stages is to make sure you build a business where you have a unique competitive advantage, you understand the problem or the space very deeply — and you are the best person to run it because you have unique skills and strengths to build that business,” says Gonzalez-Blanch. This is where market research can pay off.

Get proof of concept

“You can do that for free or for very little money by doing a lot of research and making sure you can find customers before you even ask anybody for money,” says Gonzalez-Blanch. “That’s the best way to get funded. Once you show you understand the market very well, that you know how much to charge and you know your business model well, then you will be in a great place to fundraise as a startup and as a small business.” 

There are many ways to get proof of concept depending on your industry. If you’re selling a professional service, market it via a freelance marketplace. Consider launching a future restaurant as a local catering service first or opening a retail clothing shop as a pop-up inside another local business before you ask anyone for funds. The idea is to start small and refine your idea before you seek money from someone else. 

Organize your financials

Anyone who backs your business will want to understand how much money it’s making and its growth potential. Keeping good financial records from the get-go can help you illustrate that value. Open a business bank account and business credit card — and keep your business finances separate from your personal ones, so you have a complete record of your revenue and expenses. Consider using accounting software so you can stay on top of invoicing, which will help your cash flow and allow you to track revenue and profits accurately. 

Write a business plan or pitch deck

This will help you summarize what your business does, who the customers will be, your strategies for product development, marketing and other key areas of the business, the credentials of your team and other key information.

Prepare the information in the format your target backers prefer. Need a loan? You’ll probably want a business plan. Seeking investors? You may need both a business plan and a pitch deck, where you summarize the arguments for backing your business in a way that’s easy to present. “Both documents essentially say the same thing, but the format changes,” says Geri Stengel, president of Ventureneer, a New York City-based firm specializing in researching the challenges facing underrepresented founders.

Look into grant funding

Grants are cash awards with no pay back feature so long as you continue to meet the funding requirements. Check out sites that maintain active listings of grants for new businesses, such as the Access to Capital Directory, and those run by your state and local economic development corporation. “There’s no one central source for those kinds of grants and you never know which corporation or government agency will provide grants,” Stengel says. It’s also a good idea to set up a search engine alert for grant funding.

Keep in mind it takes time and effort to apply for grants — so prioritizing those that offer the biggest cash awards is often the most efficient approach. Otherwise, Stengel says, “it can take you away from being focused on your business.” 

Consider crowdfunding

Invented a great new product? You may be a candidate for crowdfunding, in which you develop a prototype and encourage everyone you know to preorder it in a campaign using a platform such as Indiegogo and Kickstarter.

Network with early-stage funders

Startups in fields such as technology or gaming often turn to private investors known as angels or to professional investors in venture capital firms for early-stage “seed” funding. These deals are built on trust, so if you’re looking to go this route, it’s important to become part of business networks to connect with potential investors. Additionally, you can attend meetups and pitch nights for startups in your area, which can be found through Eventbrite, meetup.com and the events calendars at local business schools.

For ideas on early-stage financing, see “Financing option for businesses.”

Growth

Once a business starts to grow, it is often easier to obtain financing because there is some historical financial data for lenders and investors to consider. However, you'll need to learn how to tell the financial story of your business so you don't miss out on funding, like bank loans, lines of credit, private funding or venture capital.

“As a business owner, it’s not enough to excel at describing your product, service or the ‘why’ behind your business—you must be just as skilled at explaining the numbers. Investors and finance people want to make a return on their investment,” says Julia Pimsleur, best-selling author, scaling coach, international speaker and entrepreneur. “Being fluent in your financials is essential to gaining trust and securing investor funding.” 

The following are key to financing growth:

Clean up your books

A valuable resource to help you become loan-ready is your current business banker or a reputable lender. Your banker can assess your financial situation to help you understand your strength as a loan candidate and identify areas for improvement, such as paying down debt or increasing revenue.

Banks often provide a checklist of required documents, including tax returns, financial statements, and business plans. They can also guide you in preparing or refining these documents to meet lender requirements.

Additionally, your banker can explain the various types of loans available, such as term loans and lines of credit, and help match the right product to your needs. If traditional lending options aren’t the best fit, bankers can also provide guidance on alternative sources, such as SBA loan and Community Development Financial Institutions (CDFIs). 

Make sure you truly understand the financials of your business

Backers want to know that your business will continue to thrive and grow and that they’ll benefit financially from betting on it. That means you will need to demonstrate you understand the financial levers that determine its success. Your local Small Business Development Center or SCORE can provide free and low-cost help on this front.

Understanding your financials may not be something you learned in school or at your last job — but that doesn’t mean you can’t master it. Sit down with a business banker or business advisor, such as an accountant, to understand the numbers that matter in your business — often called key performance indicators (KPIs) and your profit margins, broken down by sales channels. Common KPIs are revenue, profit, and number of customers acquired. Identify areas where you can build on strengths and shore up weaknesses.

“Anticipate a lot of questions about your finances and the KPIs,” advises Pimsleur. “Many people don’t prepare enough for that.”

Document your traction in the marketplace

Potential backers don’t just bet on past results. They’ll also be looking for indicators of your future potential, such as traction you’re starting to get in the marketplace. “That traction could be a big new business partner or an online community where the retention rate has gone from 50% to 70% over a six-month period,” says Pimsleur. Indicators of traction are great talking points for conversations with investors and bankers.

Keep growing your business network

Consider joining local entrepreneurial communities and groups such as your chamber of commerce or, for larger small businesses, global organizations such as Entrepreneurs’ Organization or Vistage that have local chapters. “Even if you’re new to the business community, there’s always a group in every single city you can join,” says Gonzalez-Blanch.

Time your fundraising strategically

Often the best time to seek a loan or line of credit, or to sell a stake in your business to outside investors, is when your business is humming, revenue from customers is flowing, and you aren’t in desperate need of cash. Ideally, sync up your fundraising to a time when you’re closing sales. “If you have something very valuable that the world needs, you will have customers willing to pay for it,” says Gonzalez-Blanch. “That will give you strength in your fundraising.”

Mature business

As a business matures, there are many opportunities to add to its value, whether by taking steps to build its culture, investing in development of a new product line or service, or putting better systems in place for management of its finances. All those value-adds can enhance how readily you can get the cash you need for capital expenditures and securing your business’s position.

Capital for the mature business

Some improvements may require outside funding. For instance, if you’re expanding your team, you may need to obtain a real estate loan for a new building and a line of credit to make sure you can make payroll if there is an unexpected disruption to your business. To obtain a critical piece of equipment, you may need equipment financing.

Your banker can help you anticipate future funding needs and determine the right type of financing. Because financing needs can crop up unexpectedly, it’s important to stay prepared. “If you’re a mature company and want to get funding, keep your books in order,” advises Stengel. It’s also important to establish and maintain a strong business credit score, as this can play a key role in securing financing when you need it.

In addition, maintaining impeccable finances and your ability to obtain credit or financing during this stage of your business’s journey sets you up for what comes next, whether that involves bringing the next generation on board or preparing for your exit.

Transitioning

When an owner is finally ready to move to their next venture or a new phase of life, exiting the business by selling it can be a way to reap the rewards of their hard work and build wealth. This takes time and preparation and often requires access to creative financing to make it work, so it’s a good idea to start early.

Financing for a succession plan

“When you’re thinking about exiting and selling, it’s important to think about who your ideal buyer is,” says Gonzalez-Blanch. You’ll need to tailor your exit strategy depending on whether you’re planning to transfer your business to family or sell it to another business owner, trusted employee, private equity fund or other investor.

For instance, if you’re selling the business to family or to an employee, they may need to obtain a bank loan and ask you to provide some additional financing for the deal so they can afford the purchase. That may require you to remain an active part of the business for a set period and continue to maintain some of the financing you’ve obtained until the business completely changes hands.

Timing your exit will also be critical for ensuring the best return on the work and money you and your backers have put into the business. You’ll need to determine if it’s best for you to sell the business at a high or low, keep an eye on market conditions and consider factors such as tax implications and legal fees, notes Gonzalez-Blanch.

Because of the complexity of exiting a business, it’s important to work closely with a team of advisors, such as your banker or investors, a valuation advisor and, depending on the type of transaction, a business broker, attorney or accountant. “There is a lot you need to think about when you sell,” says Gonzalez-Blanch.

Although it can be hard to let go of your business, selling it can be a great way to benefit from the time and money you’ve invested in building it. Even better, you may be able to build wealth you can pass along to the next generation or invest in other up-and-coming entrepreneurs.

Conclusion

Gaining access to capital is a dynamic and evolving process that plays a crucial role throughout the four stages of a business journey: startup, growth, maturity and transitioning. At each phase, the approach to seeking and leveraging capital shifts, requiring different strategies, resources and partnerships. Whether launching, scaling, sustaining growth, or preparing to exit, aligning your capital needs with your business stage is key to building a solid financial foundation and ensuring long-term success.