To grow a business, one enormous hurdle must be overcome

Business owners seeking to expand sometimes have to loosen their grip on the reins in order to progress

For many businesses on a growth trajectory, the tension between control and capital is becoming commonplace. Picture: iStock

Growth is good. Businesses that want to expand are usually doing so because leadership recognises growth opportunities. It’s a sign of real ambition. Growth is also difficult.

There are many challenges that come with growth but addressing most of them requires clearing one enormous hurdle in particular. If you can’t access the funding required, the growth ceiling gets a lot lower, especially if you don’t want to give up control of the business. Sometimes, you’ve got to loosen the grip on the reins in order to progress.

“Preserving ownership is often a founder’s instinct,” says Ken Brady, head of debt and capital advisory at Grant Thornton. “But there comes a point when holding too tightly to equity can slow a company down more than sharing it would accelerate growth.” For many businesses on a growth trajectory, the tension between control and capital is becoming commonplace. While bank lending remains central to most funding, access is getting more challenging.

“When bank lending becomes constrained, whether due to leverage limits, tightening credit conditions or the company’s own balance sheet capacity, there are still several avenues for raising growth capital while keeping ownership intact,” says Laura Gilbride, deals partner at PwC Ireland. “Revenue-based financing, venture debt, and asset-backed lending can all unlock capital while preserving control.” There are also other routes that can be considered without giving up real control. Non-bank lenders are becoming increasingly popular.

“Non-banks have become vital for deal making, capex and acquisitive growth,” says Gilbride.

For SMEs, the growth of such alternative lenders has been a positive as it has broadened their funding options considerably.

Ken Brady, head of debt and capital advisory at Grant Thornton

“When traditional bank borrowing is no longer viable, business owners still have several ways to access growth capital without relinquishing control of their company,” says Brady.

“Non-traditional lenders have become an important part of the funding landscape for SMEs. They offer faster, more flexible and bespoke debt solutions tailored to the needs of growing companies.” The options growth businesses can avail of include revenue-based financing, venture debt, and asset-backed lending.

“This can be done via alternative forms of debt and structured or quasi equity,” says Brady.

That doesn’t mean it’s all sunshine and roses. While there are ways and means to avoid equity dilution, it comes with a cost.” “Non-dilutive capital preserves ownership, but it is never ‘free’. The cost simply takes a different form,” says Gilbride.

“Financially, it typically carries higher interest, tighter covenants and shorter repayment periods than traditional debt. Strategically, it introduces fixed obligations that can limit flexibility, particularly in a downturn.” Yet for all of those challenges, the inner need to maintain control is natural. It’s simply instinctive to want to do so with something you have built from scratch, even if it is to the possible detriment of the company.

“Ownership becomes counterproductive when it restricts the company’s ability to seize opportunities,” says Gilbride. “The real inflection point is when the cost of underinvestment outweighs the dilution required to bring in the right partner.” There is a possible Goldilocks zone for such owners, the ones who want to maintain control but not limit the ceiling.

Owen Hackett, managing director, Focus Capital Partners

“One common route is minority equity investment, where founders sell a small stake in the business but retain a majority shareholding and therefore overall control of strategic decisions,” says Owen Hackett, managing director, Focus Capital Partners.

“While minority investors will usually have certain protective or consent rights, these are typically focused on major corporate decisions rather than day-to-day management.”

Often these minority investors are not just investing their money but also their minds into the business.

“Strategic minority investors bring not just capital but also industry expertise, networks and market access that can help accelerate growth,” says Hackett.

Still, the process can understandably be an emotionally difficult one for owners. Being able to loosen the reins, even a little, also means being willing to be open to change.

“While bringing in an equity partner means giving up some ownership, the right investor can provide experience, networks, and additional capital that help accelerate growth,” says Hackett.