6 Financing Options for Small and Growing CPG Businesses

financingFor new suppliers or CPG companies looking to expand into mass market, financing can be an issue. There are likely to be changes required all along the supply chain in order to have the capacity required to produce the volume needed to have a place on the shelf in a retailer like Walmart. There may be travel and multiple meetings, training and other third party services, and increases in marketing and promotions to get the numbers you need to demonstrate demand.

The transition from a specialty store brand to mass market, or from a local Walmart or Walmart.com brand to a broadly stocked Walmart brand, can take months or even years, and it can represent a significant investment. It’s highly unlikely that most small CPG companies can bootstrap this transition.

So where is the money to come from?

Geoff Anderman of Turning Point Capital lists six great financing options for CPG businesses that are either starting off or ready for growth:

  1. Bank financing is the traditional approach. If you have great credit, significant net worth, and firm prospects for expansion, this can be a good option. Plan to visit a lot of banks and be persistent.
  2. Purchase order financing bases the financing on what you’ve already sold. Turning away business because you don’t have the capital to produce the goods is a nightmare for growing CPG businesses. This type of financing can keep it from happening.
  3. Factoring or accounts receivable financing is an ancient system of financing business. Instead of taking on debt, the company essentially sells their accounts receivables, paying a percentage to the factor. A side benefit is that the factor will generally take on collections efforts.
  4. Asset based lending involves putting up an asset as collateral. A mortgage is a classic example. If your company has suitable assets or you’re willing to put up your own home or other assets, this type of financing may be easier to secure than other kinds.
  5. Term loans are loans paid off over a specific period of time (term) at a specific rate of interest. Buying a car and making payments on it every month is an example of this type of loan. Interest rates may be fixed, or they may change depending on various factors.
  6. Unsecured lines of credit allow a company to cover ordinary business costs as they arise. A credit card is a familiar example of this type of financing. Company credit lines often rely on the owner’s personal credit.

For many CPG companies, financing is a must. These forms of financing allow you to maintain full ownership of your company while also having the assurance of sufficient working capital.