Companies with $10 million in annual revenue are often at a critical point in their journey. They may be looking to expand into new markets, enhance their product offerings, or invest aggressively in research and development to stay ahead of the curve.
All of this can cost money — and in certain industries, the road to profitability is a long one. As the old saying goes, you need to speculate to accumulate. That's why a plethora of funding sources are available to help established firms pursue growth opportunities.
Here, we're going to look at some of the most popular options for businesses of this size, how they can be used, requirements firms may have to meet, and the potential pitfalls.
1. Growth Capital
Let's kick off with growth capital. This is typically geared toward mature companies that are looking to acquire new customers, launch in other countries, invest in new technology, acquire competitors or take on rivals. Businesses that receive this financing are usually profitable and well-established.
Growth capital is typically provided by private equity firms, venture capitalists or angel investors, who will expect a significant stake in the company in exchange for their cash — and potentially, seats on the board. While this can seem like a big trade-off, their expertise can enable key targets surrounding profitability, revenue and market share to be achieved faster. Crucially, this also eliminates the need for repayments that can eat into a firm's cashflow.
Flexible growth capital loans that involve no equity dilution are also available. This can be better suited to executives who have a clear vision, but just need the funding to enact it.
For the best chance of success, it's worth looking at lenders who specialize in your sector — experts who know the pain points your firm will currently be facing, and the opportunities that lie ahead.
2. Equipment Financing
This particular option is geared toward companies in sectors where expensive equipment is needed to deliver goods and services — the agriculture and travel industries being prime examples. Businesses with annual revenues of $10 million will typically be looking to invest in machinery that achieves efficiencies with the speed and cost of output. But even for firms with healthy balance sheets, making this investment alone can be calamitous for cashflow.
Equipment financing allows the cost to be spread over time, and can help entrepreneurs achieve future growth goals much faster. This also provides a much-needed dose of predictability, as monthly payments will remain consistent. Other options include leasing — and while this means a firm wouldn't own machinery outright, this gives them the option to upgrade to more advanced equipment in the future. Better still, it's tax deductible.
Beyond agriculture and travel, there are dozens of sectors that can benefit from equipment financing — manufacturing, haulage, construction and hospitality among them.
3. Asset-Based Lending
Typically, companies with multimillion-dollar revenues will have valuable assets on their balance sheet — and through this funding option, they can be used as collateral for a loan. Examples of assets can include everything from real estate and intellectual property to accounts receivable and inventory, but generally, lenders perceive physical assets as a riskier form of collateral.
Generally speaking, the checks that specialist lenders will perform differ from cashflow financing. They'll be seeking to examine the quality of your firm's assets, and this could determine how much can be borrowed and the interest rates that'll be levied.
Because lending is tied to collateral, entrepreneurs can have greater flexibility when making business decisions — even if their sales endure a fallow period. This will prove especially advantageous for firms that rely on seasonal trade, as they may need to tap into lines of credit for the raw materials and resources required months before demand hits its peak.
As you might expect, certain assets are ineligible to be considered. Perishable goods are a prime example here.
4. Mezzanine Financing for Scaling
So far, the options we've explored fall into one of two camps: taking on debt, or sacrificing equity. But there are funding sources that provide a happy medium between the two — and one of them is mezzanine financing.
This approach is especially useful for businesses that have found it difficult to access funding from conventional sources, or have failed to secure the full amount. If a principal lender has only offered 60% of the desired capital, mezzanine financing could be used as a top up.
A big benefit with this method lies in how providers will be prepared to offer a loan that's based on a multiple of adjusted EBITDA, making it a more flexible approach when compared with traditional banks.
The exact terms surrounding mezzanine financing can vary — but in many cases, it will involve a loan being extended to a company. If the funds aren't paid back in a pre-agreed period, it will then be converted into equity.
There are pitfalls to bear in mind here. One is that the interest rates surrounding mezzanine financing are often considerably greater, and this reflects risk on the lender's part. Entrepreneurs may also have to make a personal guarantee that the debt will be repaid.
6. Business Lines of Credit
In some cases, your company may not be looking to borrow millions of dollars. Instead, you may just want to have a financial buffer that can be tapped into whenever there are unforeseen circumstances.
Business lines of credit are not all that dissimilar to consumer-facing products. After a successful application, firms are given a hard credit limit — and the chance to access funds whenever required. Interest is only charged on the cash that's borrowed, with no early repayment fees to worry about.
The flexibility this delivers can be a huge boost, not least because companies don't need to make continual applications to withdraw cash. However, it's best used for shorter-term purchases such as stock, urgent repairs to equipment or out-of-the-blue expenses — smaller obligations that can easily be paid back once cashflow is stronger.
It is worth noting that business lines of credit do tend to command higher interest rates than loans, primarily because they're an unsecured form of lending. However, offering up collateral can allow you to access funding on more favorable terms — and can even lead to a higher credit limit.
Just like continually using a credit card for everyday essentials can suggest that a consumer is struggling to balance their checkbook, it's important to ensure that business lines of credit aren't used excessively. Repeated use can indicate that there are persistent cashflow issues that need to be resolved, and repayment terms with clients and suppliers may need to be revisited.
7. Strategic Investment Rounds
If you read tech or industry publications, you may often come across headlines about firms raising millions through Series A funding rounds. Companies with an annual revenue of $10 million are among those that can benefit from strategic funding rounds — especially considering they'll already have products and services in the marketplace.
There's a lot of arithmetic that goes into this process, and typically, venture capital firms are involved. They will be looking for companies with ambitious business models that will lead to long-term profitability — with current revenues, the potential market size and the current customer base just some of the factors used to come up with a valuation.
Figures from Fundz suggest that a total of $1.5 billion was invested during Series A funding rounds in the second quarter of 2023 — with businesses raising an average of $15.9 million.
A key to success here can involve securing a venture capital firm that will serve as an "anchor" for the campaign, as news of their involvement may entice others to get involved. Beyond the capital injection, they can also provide expertise that will help fuel expansion. Further funding rounds — referred to as Series B, Series C and so on — tend to focus on growing market share, scaling up, entering new markets, or exploring mergers and acquisitions with smaller competitors.
Strategic investment deals are especially prevalent in the tech sector, where major giants including Google are known to back startups developing services that could prove beneficial for its own business in the long run. But there are some potential pitfalls to consider. For one, they may demand to have an outsized influence in your company's future development and strategy — and could even insist that they have first refusal in the event that your venture is sold off.
8. Export Financing
As we've mentioned throughout this article, businesses that command multimillion-dollar revenues are often looking for new ways to expand internationally. However, taking the first tentative steps to securing overseas customers can lead to headaches. Shipping can end up taking considerably longer, payments from new clients can be slower, and fees and exchange rates deliver an added layer of complexity.
That's where export finance comes in. Here, specialist providers allow companies to receive income from foreign customers in a matter of days — eliminating a months-long wait. The lender will then be tasked with collecting the payment from your clients when it comes due. Of course, a fee is charged in exchange for this service.
Other alternatives in this area include working capital loans that allow you to borrow against the value of outstanding invoices — making it easier for you to fulfill overseas orders.
The benefits are clear to see, not least because it can help thriving businesses unlock demand around the world. Not only can this be a crucial catalyst for revenue growth, but it can also provide much-needed diversification and an insurance policy in case other aspects of your company's operations start to perform more poorly.
Needless to say, exports are hugely beneficial to domestic economies — boosting employment and tax revenues. Because of this, countries around the world have export financing programs that are designed to support businesses providing goods and services overseas. The Export-Import Bank of the United States offers American businesses protection against non-payment, as well as working capital loan guarantees. Similar initiatives have also been established globally — including in the U.K. and India.
9. Debt Restructuring
Instead of taking out additional loans to cover existing obligations, debt restructuring offers a powerful way of improving the financial health of a company. Here, common options include prolonging current contracts or renegotiating interest payments.
Creditors can be incentivized to explore potential solutions because this may be less time consuming and intensive than a bankruptcy — and they could receive an equity stake in the business in exchange for flexibility. This is normally pursued through Chapter 11 proceedings in the U.S.
In the past, private equity firms have been enlisted to help bring businesses back to rude financial health — sometimes by modernizing their image. The fast food chain Sbarro is a good example, which managed to bounce back by opening standalone pizzerias instead of depending on footfall in shopping malls.
10. Private Placement and Direct Investments
Last but by no means least, another option to consider is private placement, which allows businesses to sell shares or bonds to a pool of pre-selected investors or institutions. This gives entrepreneurs to access a large level of funding without going through an initial public offering — and avoid an endless array of time-consuming regulatory requirements in the process, as well as the need to make public financial disclosures and list the firm on the stock market.
It's important to note that only accredited investors are eligible to take place in private placements, primarily because such unregistered securities can be risky. Guidelines from the U.S. Securities and Exchange Commission list some of these requirements as having an annual income that exceeds $200,000, and sufficient professional experience.
While this can be a faster route to unlocking funding, the high net worth individuals and financial institutions that participate in private placements can be exceedingly demanding. They may expect much higher interest rates than conventional bonds, a large stake in the business, or fixed dividend payments.
When it comes to finding private equity, it's important to target your pitch as precisely as you target your customers. Many firms specialize in specific sectors or geographical areas — so there's little point approaching an institution that focuses on tech in Asia about a retail opportunity in Europe.
Finding a Way Forward
Exploring potential financing options for multimillion-dollar businesses can be a daunting process — with pros and cons to consider at every turn. It's important to allow as much time as possible when applying for funding, as urgency can lead to rash decisions and unfavorable terms. Cultivating a business plan, forecasts for the coming years, in-depth research about the market and targets for growth can make opportunities far more compelling for investors.
Company executives need to take the time to fully consider their goals, crunch the numbers to see how repayments would affect their bottom line, and weigh up whether they are willing to sacrifice equity in exchange for a cash injection. This is a huge milestone for a business — and done right, it can be the start of an exciting new chapter.
