Growth capital is a powerful tool for small and medium-sized enterprises (SMEs) ready to scale. Unlike day-to-day working capital, growth capital is used to fund strategic expansion, including launching new product lines, entering new markets, or upgrading existing operations.
It is sometimes referred to as expansion capital, and it typically comes into play when companies are ready to move beyond the initial start-up phase.
However, this form of finance isn’t suitable for every organisation, and timing is crucial: applying too early can harm your business or scare off investors, but applying at the right time, with the right organisation, can transform it and lead to positive developments.
If you’re exploring your options, considering alternative funding from a lender like Lula could be the right fit.
So, how do you know you are ready? Here are five signs:
5 Signs Your Business is Ready for Growth Capital
1. A proven track record of consistent revenue
One of the clearest signs that your business is ready for growth capital and the next phase is consistent revenue over time. A stable and predictable income stream demonstrates product-market fit and operational reliability. It gives both you and your funders confidence that your business can support the cost of capital.
This doesn’t mean growth capital is only for massive operations – the very point of growth capital is to help you expand.
However, Thomas McKinnon, Chief Growth Officer at Lula at the time of writing, notes that because Lula is focused on responsible lending, the proven growth of an established, profitable business is crucial.
“Lula is aimed at growth businesses – businesses that are looking to accelerate, not businesses looking for survival,” explains McKinnon. “Growth capital is not a day-to-day strategy.”
Steady revenue gives lenders like Lula the confidence to support your business’s growth objectives with the cash flow buffer it needs for expansion. It also demonstrates that you understand your market and can continue delivering value at a sustainable pace.
This consistency shows that you’re responsible and doesn’t have to mean huge profits – even modest, reliable income is often enough to indicate you’re ready for your next growth phase.
2. Clear financial reporting and forecasting
Growth requires precision, which means you should be able to demonstrate strong budgeting, clear forecasting and accurate reporting.
This is often where many SMEs fall short – not because they are unsuccessful or don’t have a path to growth, but because they lack clarity in their financial operations and the ability to demonstrate this to lenders or potential investors.
“Try to understand the total cost of that capital,” McKinnon suggests. “What’s it going to cost you to repay? Do you need insurance? Are there costs of delays?”
Financial readiness in this context also means being able to answer questions like:
• What is your average monthly income and expenses?
• Do you know your gross and net margins?
• Can you forecast the ROI on a potential growth investment?
This isn’t always as complex as it might seem. For example, Lula customers who use Lula’s digital business bank account gain real-time insights into their cash flow.
Tools like Payment Controls and Multicompany also offer additional features like the ability to manage multiple accounts from a single profile and delegate invoice payments without giving up final authorisation. These tools make financial forecasting more efficient and accurate, and provide valuable data that strengthens any funding application.
Well-maintained management accounts, three months of bank statements and a good credit score will place you in a strong position to successfully secure growth capital in South Africa.
With Lula, you can kickstart your business growth with access to up to R5,000,000 in funding within as little as 24 hours. Apply online in minutes to see if you qualify.
3. A defined growth opportunity and plan
Many great funding stories start with a clear, responsible growth opportunity. This might be the chance to open a new store, launch a new product, expand to a new region, or increase production capacity to fulfil a large contract.
McKinnon says ‘the absolute golden rule’ of growth capital is to make sure there will be a return on the investment:
“Although more established businesses usually think this through well, we often see that smaller business owners haven’t worked out the total cost of that capital before they take capital.”
Growth capital should not be accessed for survival, short-term cash flow plugs, or covering basic operational expenses. Instead, it should unlock new revenue or create operational efficiencies. But if you know your growth opportunity and markets, what it will cost to finance, and how long it will take to recoup that investment, you’re already in a good space to access business development funds. If you can forecast what the likely return will be once you’ve invested, even better.
A good example is Anthony Anti-Corrosion Coating, a Cape Town company that used business funding from Lula to invest in equipment that scaled its production capacity.
“We used Lula’s business funding to expand into a larger workshop,” says Managing Director Marie-Louise Dreyer. “Our first funding was for two poster lifts and an industrial imported high-pressure washer. Those are big purchases for a small operation.
“Lula helped us fund the entire infrastructure of the business and buy bulk stock for our DIY products. It’s been a game changer.”
4. Ability to repay responsibly
One of the most common reasons SMEs fall into trouble is overextending themselves with debt they can’t afford to repay, even with the development opportunities growth capital funding allows them to take advantage of. This is why commitment to responsible lending is at the core of our funding approach.
Before applying for growth capital, make sure you have a clear plan to repay the amount. Can your projected revenue from the investment comfortably cover your repayments, and do you have a cash flow buffer for any unforeseen delays or expenses?
Responsible lenders don’t want to give a business more than they can afford to repay. This is why affordability is so fundamental to our assessment processes at Lula – and why organisations that request growth capital funding need to provide bank statements, credit history and management accounts. The goal here is not to overburden you with admin, but to ensure you’re not taking on unnecessary risk.
5. A scalable proposition
The best candidates for growth capital are companies that possess something others don’t, be it a unique product or service, or a novel approach to a familiar product. This, coupled with demonstrated market demand, is a good indication of possible scalability.
However, more importantly, these businesses must also be prepared to scale. That means having the capacity to increase production or service delivery, and systems that can grow with your revenue. A plan to hire or expand operations when needed is also crucial.
A strong management team also helps. Investors, including private equity firms and family offices, often look at the team’s ability to execute growth plans before providing finance or growth capital. Lula commonly sees funding applications from SMEs in precisely these positions.
Often, they are retailers needing bulk inventory to meet large orders, manufacturers investing in machinery to reduce unit costs, or food operations expanding to new outlets or franchising.
If your business is already successful but unable to take on more work, growth capital can be the key to scaling up efficiently and safely. Growth capital works best when your business is on the brink of new markets and something bigger – a new location, product line, or the capacity to fulfil more orders.
“At Lula, we’re a business looking for growth – that’s why we can relate to our customers so often. But are you super clear about what your biggest growth opportunity is, what it’s going to cost you to chase that opportunity, what it’s worth, and is it value-creating?” says McKinnon.
Explore Lula’s Flexible Growth Capital Options
Lula offers two tailored funding options for SMEs looking to scale with growth financing solutions in South Africa: Lula’s Fixed Term Funding and Lula’s Cash Flow Facility.
If you need a once-off cash injection to seize a specific growth opportunity, the Lula’s Fixed Term Funding is an ideal solution. It is perfect for expanding your product line, taking on a new contract, or fulfilling a large order.
The Cash Flow Facility is a flexible line of capital, which is similar to a credit facility, that you can draw down from when you need it. You only pay for what you use, making it ideal for managing long payment cycles, bulk buying to lower unit costs, and expanding stock levels for peak seasons.
Both options come with transparent, all-in-one pricing, no early settlement penalties, and no hidden fees or facility charges.
A Game Changer for Growing Businesses
Growth capital can be a game changer for SMEs – but only when used responsibly and at the right time. If your business has proven revenue, clear financials, a defined growth opportunity, the ability to repay, and the capacity to scale, you may be ready for expansion.
At Lula our team is here to support your business growth. With fast, flexible funding tailored to small businesses and a team that prioritises responsible lending, we make it easy to act when the opportunity is right.
Apply now for flexible funding to kickstart your business growth.
