Growth Capital is like oxygen. It is environmental necessity for most companies seeking to grow. Growth capital is a general label applied to any type of financing that is used to fund growth. It can be a bank loan, a mezzanine loan, equity investment or even cash that is generated from the company’s balance sheet.

Growth capital is an equal opportunity label applied to all these forms of financing. All forms of growth capital should be structured in a way so that the term of the financing matches the risk profile of the project. If the project is extremely risky and is likely to generate losses, equity investment is the proper form of growth capital.

If the project is of moderate risk and will instantly produce profit, loans are the proper form of the growth capital. Growth capital as a term is not widely marketed by banks or lenders in general. It tends to be a term more used by private equity investors as a benevolent way of describing their value building philosophy. The key to understanding growth capital is to be able to break it down by price, term and risk profile. This allows you to apply it to the right situation.

Low cost growth capital can cost effectively fund small growth steps in a business. High cost growth capital can only be used to fund large growth steps in a business. One easy way to determine how much growth capital is needed is to decide how much capital is in your business now and how fast you want to grow.

If you have $2 million of capital in your business now and you want to double in size, you are likely to need up to $2 million in additional growth capital. In summary, growth capital is the lifeblood of most successful companies. Whether it comes in the form of a loan or an equity investment or everything in between, growth capital fuels corporate growth.