Entrepreneur Tara Bosch sold her company, Smart Sweets, in 2020 for $360 million. She worked hard in the early stages of her business to protect her ownership and equity. 

“When I was launching Smart Sweets, I was kind of in that era where startups were raising huge amounts of money, and raising what in itself felt like something that was celebrated, and not the fact that the money itself was just a vehicle to the real accomplishment, which was executing on the growth of the company. 

“For me, the real accomplishment would be if we could retain as much equity as possible to give to the team and to keep majority so I have control, and get debt financing to fund inventory and what not.” 

That’s a lightly edited snippet from a conversation between Bosch and Ryan Daniel Moran, shared in an episode of his podcast Capitalism.com that’s a must-listen for entrepreneurs who aspire to growth.

Bosch and Moran go on to discuss the benefits of using debt financing at various stages in business growth. Many entrepreneurs want to avoid debt at all cost, and Bosch said it was scary at times—she said she was on the hook for $13 million in debt at one point—but she didn’t want to look back with regret at the opportunities she didn’t take. . 

“Using debt to finance inventory is a very smart move,” Moran asserts. “In fact, it’s kind of dumb to use your profits to fund more inventory…It’s a huge bottleneck,” he comments, saying he’s seen it time and again. “(These entrepreneurs) can never get ahead.” 

Using financing can be beneficial in multiple stages of your business, but as Moran suggests, you need to be smart about it. Here are ways to think about debt at different stages of your business growth. 

What Are Business Lifecycle Stages

Business lifecycle stages represent the different phases a company goes through from the time a small business owner decides to put their idea into action, until the business matures and may be sold. 

Each stage of the business lifecycle has unique challenges, opportunities, and funding needs. Understanding these stages can help entrepreneurs and business owners anticipate and prepare for the evolving needs of their company as it grows and develops.

The five main stages often recognized in the business lifecycle are:

1. Launch Stage
2. Establishment Stage
3. Growth Stage
4. Expansion Stage
5. Maturity Stage

Each of these stages requires different strategies, resources, and funding approaches. As a business progresses through these stages, its priorities shift, its financial needs change, and the sources of available funding evolve.

Understanding where a business is in its lifecycle can help owners make informed decisions about investments, hiring, expansion, and long-term planning. 

Of course, not all businesses move smoothly through these stages. Some business owners may find their business stuck at one stage, cycling back and forth between stages, exiting at some point, or even closing their doors. 

Here we’ll look at each stage in more detail, covering characteristics, funding needs, and potential funding sources, along with examples to illustrate how businesses navigate these phases.

Launch Stage

The startup phase is an exciting, and often scary, phase. It’s the stage where entrepreneurs transform their interest or expertise into a solid business idea. 

A chef might open a catering business, for example, by leveraging their culinary skills to create a menu and attract initial customers. A publicist may decide to start his own agency. Or a couple may decide to start an e-commerce store. 

Challenges include:  

• Limited initial customer base: Unless you already have a name in your field, your business is probably relatively unknown. You’ll likely rely on your personal networks, word-of-mouth, social media marketing, or even paid advertising to reach your first customers.
• Focus on creating core products or services: You may have an idea of what you want to sell but ultimately the market will dictate that. You’ll test different products or services and gather customer feedback.

Funding needs:

• Business formation: Your business can operate as a sole proprietorship, but consider forming an LLC or corporation as soon as it’s feasible. (Check with your advisors.)  
• Licenses: You may need permits and registrations to operate legally, such as business licenses, health permits for food businesses, or professional certifications.
• Basic equipment: Most businesses require at least some equipment to get started. A website and point-of-sale system are also often essential. 
• Initial inventory: If you are selling physical products, you’ll need your initial stock of products or materials. And if you don’t sell physical products, you may still need subscriptions or other tools to serve your customers. 
• Small workspace: Some businesses will need a bricks and mortar storefront. Others may need a storefront, a home office, or rented commercial space.

Funding sources:

• Personal savings: It’s common for entrepreneurs to use their own money to fund initial startup costs. They could mean tapping a savings account or retirement funds, or selling personal assets.
• Credit cards: While credit cards can be risky due to often high interest rates, they can also provide quick access to funds for small purchases or short-term cash flow needs. A 0% intro APR business credit card can provide several months or even a year or more in interest-free financing. 
• Microloans: These small loans are often made by nonprofit organizations or community development financial institutions (CDFIs) to help new businesses get started.
• Community grants: Some local governments or private foundations offer small grants to encourage entrepreneurship and economic development in specific areas or industries.

Example: A hair stylist uses a business credit card or microloan to equip their first salon chair. She borrows $5,000-$10,000 to purchase a high-quality salon chair, basic hair care tools, and initial product inventory. This small amount of funding allows the stylist to start serving clients independently without the need for a large personal investment or the overhead of renting a full salon space.

Establishment Stage

At this stage, the business has begun to build a customer base, including customers that return repeat purchases or services.

Challenges include: 

• Clarifying the business model. The business may try new products or services, and test pricing, to arrive at a successful approach. 
• Cash flow: Income may be sporadic, which can lead to cash flow challenges. Seasonal sales may also contribute to erratic income. The business owner may have to forgo their own salary to pay business expenses. 
• Need for more staff or space: Increased demand requires hiring employees or contractors. The business may need warehouse space, or more room for employees. 

Funding needs:

• Marketing: The business may need to invest in advertising to attract more customers and build brand awareness. This might include local advertising, social media marketing, or promotional events.
• Hiring first employee: As demand grows, the business owner may need to bring on help. This may mean budgeting for payroll costs, and perhaps benefits.
• Equipment and inventory: As demand increases, so does the need for equipment or inventory.   

Funding sources:

• SBA loans: The Small Business Administration offers several types of SBA loans, including 7(a) loans and SBA Express loans, offered through lenders approved by the SBA. Good personal credit is often required, and some loans require a FICO SBSS score, a type of business credit score. 
• Online lenders: If the business has solid sales (backed up by business bank statements and/or credit and debit card sales), it may be able to secure a small business loan or line of credit.  
• Supplier credit: Vendors or suppliers may allow the business to purchase supplies on payment terms, such as net-30 terms. This short-term financing can improve cash flow. 

Example: A local bookstore may get an online loan or SBA loan to expand inventory. The owner might use this funding to purchase a wider selection of books, invest in an e-commerce platform, and hire an employee to manage online orders and in-store customer service. 

It may also get net-30 terms from a vendor to purchase supplies such as bags and shipping boxes, or for promotional items like t-shirts. As an added benefit, net-30 accounts can help establish business credit. 

Find easy net-30 vendors here. 

Growth Stage

In the growth phase, satisfied customers actively recommend the business to others, driving organic growth. Increasing demand means the business needs to increase capacity.

Challenges include:

• Need for more specialized roles: As operations become more complex, the business requires employees with specific skills or expertise.
• Need for more specialized technology: The business may need more sophisticated analytics or intelligence tools.  

Funding needs:

• Advanced equipment: The business may need to invest in more sophisticated machinery or technology to improve productivity and quality.
• Employee training and benefits: As the business hires more employees, it may need to add benefits to attract new employees, as well as develop and implement formal training programs. 
• New locations: A business with a physical presence may need to start to open more locations to serve more customers or increase productions.

Funding sources:

• Business lines of credit: If a business does not already have a line of credit, it should get one. This will provide the business with access to funds that let it borrow up to a certain limit as needed.
• Equipment financing: Loans or leases will allow the business to purchase new equipment, or upgrade current equipment. 
• Bank loans: As the business establishes solid revenues, traditional bank loans become more accessible.
• SBA loans. In addition to 7(a) loans, a 504 CDC loan can help the business purchase real estate, while SBA export loans can help the business expand into new markets. 

Example: A family-owned restaurant finances equipment financing to improve their kitchen. They secure $100,000 in equipment financing to purchase a larger commercial oven, additional prep stations, and a more advanced refrigeration system. This allows them to serve more customers, reduce wait times, and potentially expand their menu offerings.

Expansion Stage

While this stage of the life cycle of the business can be exciting, it’s also challenging. It may have a recognizable brand and loyal customer base. It may also have grown beyond a single location. The business may offer a larger range of products or services to meet various customer needs and capture more market share.

Challenges include:

• Increasing complexity: The business will need a management team with robust expertise and skills.
• Growing HR needs. The business will likely need to invest in HR for customer recruitment and retention. 
• Marketing challenges. The business may need to expand marketing efforts to reach new customers and increase market share. 

Funding needs:

• Buying property: If the business is renting property, it may want to purchase real estate for long-term stability and cost savings. 
• Franchising: Some businesses expand by franchising. 
• Acquiring competitors: Another way to expand is to purchase other businesses in the same industry, or by acquiring strategic partners for cost savings.

Funding sources:

• Commercial mortgages: A business may want to get a long-term loan specifically for purchasing business properties.
• Revenue-based loans: Businesses with strong revenues may be a candidate for financing options like business cash advances. 
• Term loans: A loan for a fixed amount of money can help the business finance a specific project. 

Example: A plumbing supply business decides to get a commercial mortgage to buy their building. They secure a $500,000 loan to purchase the building they’ve been leasing, providing long-term stability, building equity, and potentially reducing monthly expenses compared to rent.

Maturity Stage

Mature businesses have captured a significant portion of the target market. Brand recognition is strong. Successful businesses find sales are more predictable, and profitability is consistent. 

Challenges include:

• Research and development: The business may focus on innovations to improve current products and services to avoid entering a decline phase. 
• Succession planning: Management may want to focus on the business’s long-term continuity. It may explore an exit strategy such as selling the business or merging with another. 
• Community initiatives: Businesses at this stage may want to give back and raise their brand profile by investing in corporate social responsibility programs or local partnerships.

Funding needs:

• Modernization: The business may need to update facilities, technology, or business processes to remain competitive and efficient.
• Buyouts: An owner or other shareholders may want to exit the business or retire, and financing may be needed to buy them out. 

Funding sources:

• Cash reserves: Accumulated profits may be used to fund new initiatives.
• Long-term loans: A business with solid revenues for several years will often be able to secure loans at low interest rates and favorable terms. 
• Life insurance policies: Business owners may use life insurance as a tool for succession planning, particularly in family-owned businesses.

Example: A third-generation bakery uses a long-term loan for a major renovation. They get a million dollar loan to completely update their storefront, install energy-efficient ovens and refrigeration, and create a modern café space within the bakery. This renovation helps the business appeal to new generations of customers while honoring its long-standing traditions.

How Funding Needs Evolve and How Nav Can Help

Your business probably won’t move smoothly through each of the stages of a business life cycle. You’ll probably experience times of slow growth and rapid growth. Understanding what’s next can help you prepare for the next stage in your business journey.  

“One of the most critical factors for survival in each stage of the development process and for a smooth transition from one stage to another is an entity’s ability to fund its operation,” writes Tarun J. Mukherjee in Financing the three stages of the small business lifecycle: A survey in the Journal of Business and Entrepreneurship. 

Nav can help your business understand where it stands today, and help move your business forward. Check, monitor and manage your business credit. With Nav Prime™, the paid offering, you’ll get both personal and business credit scores* and Detailed Credit Reports from two leading business credit reporting agencies.

FAQs

How can I use my business’s assets to secure funding?

Collateral can often open up additional financing opportunities for a business. But collateral alone may not be enough to qualify for financing. Banks and other lenders don’t want to repossess collateral. That’s why it’s important to also maintain good personal credit, build business credit, and use a business bank account to verify revenue. 

What role does my personal credit score play in getting a business loan?

Many lenders check the business owner’s personal credit reports and scores, especially for businesses in the early stages of business growth. 

How do I prepare a business plan to secure a loan?

A business plan can help you understand how much you may need to borrow at various stages of your business. Learn how to write a business plan. 

Are there specific loans for women-owned or minority-owned businesses?

Community development loans and business grants may be available to small business owners who have had trouble accessing capital. Learn more about loans for woman-owned businesses and business grants. 

*Nav provides access to Experian™ Intelliscore PlusSM V2, Equifax® Business Delinquency Score®, TransUnion®VantageScore® 3.0, and Experian™ VantageScore® 3.0. VantageScore is a registered trademark of VantageScore, LLC.