Ways to finance business growth, using the stack method

Growth is the goal behind most of the goals on this site. More stock because sales are rising. More staff because the order book is full. A second site because the first one works. The trouble is that growth eats cash before it produces any, and owners often fund it with whatever’s nearest — an overdraft, a credit card, the GST money — rather than pieces that suit the type of growth. The stack method fixes that by asking two questions: what kind of growth is this, and what shape of funding matches it?

What kind of growth are you funding?

Growth type	What it looks like	Cash shape	Pieces that suit
Sales growth	More customers, bigger orders	More stock and debtors, steadily	Supplier terms, deposits, invoice funding, line of credit
Capacity growth	New equipment, vehicles, systems	One-off purchase, long payback	Equipment finance, asset refinance, profits
People growth	New hires ahead of revenue	A ramp-up dip over months	Deposits, invoice funding, short facility
Location growth	A second site or new region	Big upfront cost, slow ramp-up	Landlord help, equipment finance, term loan, property-secured funding, partner
Acquisition growth	Buying a competitor or a complementary business	Large lump sum, earnings from day one	Vendor finance, term loan, property-secured funding, equity
Product growth	New range, new service line	Development cost, uncertain demand	Profits, pre-sales, grants for genuine R&D, equity

The shape matters because funding has a shape too. A line of credit expands and contracts; a term loan is a fixed schedule; equity has no schedule at all. Match them and repayments follow the growth. Mismatch them — funding a five-year asset on a facility meant for timing gaps — and the business strains.

What’s the foundation of any growth stack?

Reinvested profit. business.govt.nz lists funding from profits and bootstrapping as core ways to fund a business, and for growth they’re the cheapest pieces of all. Before you look outside, ask how much of the growth the business can fund from its own earnings without dropping below a sensible cash buffer.

On top of that foundation, the order usually runs from the cheapest and most specific pieces to the most expensive and general. Our page on ordering your funding sources sets that sequence out.

Why does profitable growth still run short of cash?

Because growth front-loads costs. Picture a wholesaler growing sales by a third. It needs a third more stock on the shelf and has a third more money owed by customers at any time — both paid for before the extra profit arrives. A business can be more profitable every month and still have less cash in the bank. That’s sometimes called overtrading, and it’s exactly the gap working-capital pieces are built for.

Forecast it. business.govt.nz recommends cash flow forecasts with pessimistic, realistic and optimistic scenarios, and growth plans need all three. Our page on sizing a funding gap walks through the method.

Illustrative stack: an Auckland online retailer doubles its range

Illustrative only; describes no real business.

An online homewares retailer plans to double its product range over a year: more stock, a bigger warehouse space, one more staff member and a marketing push. Total growth cost over the first six months: about $320,000.

• Reinvested profit: $70,000, keeping a buffer intact.
• Supplier terms: two key suppliers move to 60 days on new ranges, carrying about $80,000.
• Pre-orders on hero products: $25,000.
• Equipment finance on warehouse racking and a forklift: $30,000.
• A term loan of $115,000 for the marketing push and the new hire’s ramp-up, repaid over two years.

Each piece fits a part of the growth, and the term loan covers what the faster pieces can’t. If you’re planning growth like this, a real person can check the loan piece without a credit check.

How do you stress-test growth funding?

Growth plans are optimistic by nature. Before committing:

• Slow it down. What if growth takes twice as long? Can the repayments still be met?
• Delay the cash. What if your biggest customers pay two weeks later?
• Shrink the margin. What if you discount to win the new customers?
• Check the tax. Growth years often bring a jump in provisional tax and larger GST returns.

Our repayment load test helps you run these scenarios.

When is equity the right growth piece?

When the growth is large relative to the business, uncertain, or slow to pay back — a new product, a new market, an expansion that won’t earn for a year or more. A partner or investor shares that risk. For growth with a clear, near-term payback, borrowing usually costs less over time because you keep all the upside. Worked examples: opening a second site and buying a business.

How do you present a growth stack to a lender?

business.govt.nz notes lenders want proof you can repay the loan and the interest, supported by financial records, a cash flow forecast and a business plan. For growth, add the full stack — every piece, not just the loan — so the lender can see how much risk you and others are already carrying. The guide on writing a funding plan lenders read shows a simple format.

Ready to fund the part of growth profits can’t carry?

Once you’ve matched your growth type to its pieces and stress-tested the plan, the gap left is clear. Tell us about the growth and the gap and a real person will call to talk it through. There’s no credit check to start, and your enquiry isn’t sprayed across a list of lenders. Please fill in the form accurately — your current turnover, the growth plan and the size of the gap help us suggest the right piece first time.