Business Growth Finance: How UK Companies Fund Expansion With Debt

Business growth finance is debt raised to fund expansion: new sites, new contracts, more stock, new equipment, an acquisition or a move into a new market. For an established UK company, the right facility depends on what the money is for and what the business can lend against, whether that is profit, assets, property or recurring revenue. Used well, growth debt lets owners fund expansion without giving away equity.

This guide is for owners and finance directors of profitable, trading businesses looking to raise from £200k to £100m to grow. It is not about start-up loans or small online lending. It explains how lenders actually assess a growth case, which structures fit which kind of expansion, and how to put a package together that leaves the business with headroom.

Key facts

• GBF arranges facilities from £200k to £100m, whole-of-market with access to 650+ lenders.
• Senior term loans are priced from 6.5% a year or 2.5% over Bank Rate, at up to 4x EBITDA, with terms of 1 to 10 years. Unsecured lending is available up to £2m.
• Asset based lending, from £2m to £100m, can advance up to 90% against receivables and up to 90% of the net orderly liquidation value (NOLV) of stock in one revolving facility.
• Acquisition finance can reach up to 5x EBITDA over terms of up to 7 years.
• The Growth Guarantee Scheme supports facilities of up to £2m per group, with a 70% government guarantee to the lender. The borrower remains fully liable.
• All finance is subject to status and lender approval, and is priced deal by deal.

What business growth finance means for an established company

Most search results for this phrase list small loans, grants and equity funds side by side. For a business already turning a profit, that misses the point. The real question is not "where can I get money" but "which lender will give full credit for the thing my business is good at".

A bank credit committee looks at a growth request in a specific way. It wants to know three things:

1. What is being funded, and whether the spend creates something the lender can see and measure (more debtors, more stock, a new site, a contract win, an acquired business).
2. What repays the debt, usually future cash flow, sometimes the sale or refinance of an asset.
3. What happens if the plan is late or smaller than forecast, which is where security, covenants and headroom come in.

Growth debt works best when the facility matches the shape of the spend. Short-term working capital needs are funded with revolving facilities that rise and fall with trading. Long-term investment is funded with amortising term debt. Mixing the two, such as funding a multi-year expansion programme on an overdraft, is one of the most common reasons growth plans run out of cash.

Debt or equity?

Equity suits loss-making or pre-revenue businesses. For a profitable company, debt is usually cheaper over the life of the plan and the owners keep the upside. The trade-off is that debt is serviced from day one, so the plan must be realistic about timing.

Matching the facility to the growth plan

The table below shows how we typically match common growth needs to a facility, and what the lender sizes it against.

You can read more about each product on our business loans, asset based lending and acquisition finance pages, or see how lenders approach your sector on our industries page.

What lenders look at in a growth case

Track record of the existing business

Lenders lend against what the business has already proven, not what it hopes to achieve. Recent filed accounts, current management accounts and an aged debtor and creditor list are the starting point. Consistent margins and clean cash conversion matter more than a single strong year.

The quality of the forecast

A growth forecast needs to be built from the bottom up: new sites, new customers or new contracts, each with its own ramp-up. Lenders will stress the forecast, so we recommend showing a base case and a downside case and proving the debt can still be serviced in the downside.

Where the money goes

Credit committees want a sources and uses table. If part of the raise funds capital spend, part funds working capital and part refinances existing debt, each element should be shown separately, because each may suit a different facility.

Management and controls

Reporting has to keep up with growth. Prompt monthly management accounts and an updated cash flow forecast give a lender confidence to lend more. Lenders will also check what security is already in place, so have details of existing debentures and guarantees ready.

How much you could raise

The headline multiples and advance rates set a ceiling. Affordability usually sets the final number. For a cash flow loan, lenders test whether the business can meet interest and capital repayments from its forecast cash flow, with room to spare. For asset based facilities, the eligible part of each asset class sets availability.

Often the largest and cheapest package comes from more than one facility. A business with a freehold, a sizeable debtor book and steady EBITDA might combine a commercial mortgage, an asset based facility and a term loan, with each lender taking the security it understands best. We explain how lenders size each of these in more detail in how much can my business borrow, and you can model repayments with our financial calculator.

Using the Growth Guarantee Scheme

Where a business lacks enough security for the full facility, the Growth Guarantee Scheme can help. The British Business Bank provides the lender with a 70% government-backed guarantee on facilities of up to £2m per group. It can be used for term loans, overdrafts, asset finance, invoice finance and asset based lending, and it can sit alongside larger senior debt. The borrower remains fully liable for the debt. Eligibility rules are set by the scheme and by each accredited lender, so we check the current position on every deal. Our Growth Guarantee Scheme guide covers the detail.

Costs and terms

Pricing for growth debt depends on the facility, the security, leverage and the strength of the business. As a guide:

• Senior term loans: from 6.5% a year or 2.5% over Bank Rate, terms of 1 to 10 years, unsecured up to £2m.
• Revolving credit facilities: from 2.5% over Bank Rate, 3 to 5 years committed.
• Asset based lending: from 2% over Bank Rate, 3 to 5 year terms.
• Commercial mortgages: from 1% over Bank Rate, up to 25 years.

Beyond the margin, compare arrangement fees, non-utilisation fees on revolving facilities, early repayment charges and the covenant package. A slightly higher margin with looser covenants and more headroom can be the better deal for a business in a growth phase, because it reduces the risk of a breach if the plan takes longer than expected.

Common mistakes when funding growth

• Funding long-term investment with short-term facilities. Overdrafts and invoice finance are not designed to pay for a fit-out or an acquisition.
• Borrowing the maximum on day one. Leave headroom for delays, cost overruns and the working capital that growth always absorbs.
• Going to one lender only. Your bank may not be the best fit for a growth plan, and you will not know what the market offers without testing it.
• Ignoring working capital. New contracts usually mean more debtors and more stock before any extra profit arrives. Plan for it.
• A forecast with no downside case. Lenders will build one anyway. It is better to show them yours.
• Leaving it too late. Raising debt while trading is strong gives you better terms than raising it once cash is tight.

How GBF helps

As a commercial finance broker and debt adviser, we start by understanding the growth plan and the business behind it. We prepare a credit paper that presents the case the way a credit committee wants to see it, then approach the lenders best suited to the deal from a whole-of-market panel of 650+ lenders. We negotiate the terms, compare offers on more than headline rate, and manage the process through to completion. GBF has arranged £165m+ of funding. For larger or more complex raises, our debt advisory team runs the whole debt process end to end. Start with our business loans page or read the business loans guide.

FAQs

What is business growth finance?

Business growth finance is any funding used to expand a business, such as term loans, revolving facilities, asset based lending, asset finance, trade finance and acquisition finance. For established companies it is usually debt rather than equity, so the owners keep full ownership. The right structure depends on what is being funded and what the business can borrow against.

How much can an established business raise to fund growth?

GBF arranges facilities from £200k to £100m. Cash flow lending can reach up to 4x EBITDA, acquisition finance up to 5x EBITDA, and asset based lending can advance up to 90% against receivables. The final amount depends on affordability and is subject to status and lender approval.

Can I get growth finance without giving away equity?

Yes, for a profitable business, debt is often the main way to fund growth without dilution. Lenders will want to see a track record, a realistic forecast and the ability to service the debt. Unsecured lending is available up to £2m, and the Growth Guarantee Scheme can support facilities where security is limited.

Is the Growth Guarantee Scheme suitable for growth funding?

It can be. The scheme gives the lender a 70% government-backed guarantee on facilities of up to £2m per group, which can make lenders more willing to support a growth plan. The borrower remains fully liable, and eligibility is set by the scheme and the accredited lender, so we confirm the current rules on each deal.

Should I use my existing bank for growth finance?

Your bank is a good place to start, but not always the best fit. Lenders differ in appetite by sector, deal size and structure, and comparing the market shows whether your bank's offer is competitive.

What documents will a lender ask for?

Expect recent filed accounts, current management accounts, an aged debtor and creditor list, a forecast with a base and downside case, a sources and uses table and details of any existing facilities and security. For asset based lending, lenders will also ask for stock and asset information.

If you are planning a growth raise from £200k to £100m, check what you could raise or call us on 020 3432 2341 to talk it through with an adviser at Growth Business Finance.

Sources

• British Business Bank: Growth Guarantee Scheme
• Bank of England: Bank Rate

Tom Renshaw

Founder and Managing Director, Growth Business Finance

Tom arranges business loans, asset based lending and property finance for UK SMEs and mid-market companies. More about GBF