Difference Between Growth Capital and Working Capital
Knowing what kinds of capital you have, and need, for your business can really help you get ahead and stay there. Growth capital, for instance, is the funds that you can use to expand your business while working capital is the cash you need to pay for your regular bills. When you know the difference between these two, and how to get more, you can better meet your business goals.
Growth capital is the funding used to expand your business. You may have some of this stashed away in a special fund with the hopes of opening another storefront, purchasing new equipment or even opening an online site. You do not only have to rely on your profits to fund your growth, however, as there are many different types of financing available to add to this capital pool. For instance, some state and local government agencies will offer growth grants or backed loans for small businesses.
When you are looking for funding towards growth, it is a good idea to have a detailed plan of where you are going to spend this money. This can help you find the right financing options for each stage and can even help you eliminate some forms altogether. For instance, if you need a bigger location and not new equipment, then you are likely to get a real estate loan instead of an equipment loan for growth.
Working capital is the money you use on a regular basis to pay things such as your employees and your rent. Many business owners put their profits towards working capital first and then use the rest to save for growth. Your working capital can also come from loans, grants and factoring.
The more your company grows, the more working capital you are likely to have and the more you are likely to need. For instance, if you have opened a new location, then you will use growth funding to get the real estate and equipment but working capital for paying your employees and utilities.
Growth capital and working capital are very different in terms of what you use it for as well as where you get it from. You can use profits, loans or grant for either form of capital and understanding the difference can help you allocate the right funds to the right projects. Knowing which you need is the first step in securing funding for your company.