Comparing Growth Financing Strategies

Background

This post is meant to be a primer for those who need a complete overview of business financing. I'm writing it to lay out all my learnings in one place, both for later reference and for posterity.

I'm coming into it from the asset-based lending (ABL) aspect, since that's what specifically prompted my desire to get a holistic understanding of the space. I realized upon looking into it that I was missing a lot of important context for growth-stage businesses. I've run businesses and always bootstrapped, using personal credit and funds to finance operations. Otherwise, I've been more familiar with venture backing from my tenure as a professional engineer working for startups.

I started my journey from this interview with Ben Brachot, who runs Dwight Funding, a notable ABL firm focused on DTC and CPG brands. The interview covers financing in the direct-to-consumer (DTC) and consumer packaged goods (CPG) sectors, the advantages and evolution of ABL, and capital strategies by business stage.

This is the master post in a series. For deep dives on each financing type, see:

• Asset-Based Lending
• Revenue-Based Financing
• Merchant Cash Advances
• Payables-Based Financing
• Building Business Credit

The Core Financing Options

Type	What It Is	Typical Cost	Best For
ABL	Revolving credit against AR/inventory	High single to mid-teens %	Scaling businesses with assets
RBF	Advance repaid as % of revenue	High teens to 50%+ APR	Short-term growth capital
MCA	Sale of future receivables	50–150%+ APR	Emergency cash (last resort)
Payables	Extend supplier payment terms	1–5% of invoice	Working capital optimization
Bank Debt	Traditional credit lines/loans	Mid-single to low teens %	Mature, profitable businesses

Financing Options by Revenue Stage

Financing should align with business maturity. Early-stage brands don't need credit yet; focus on equity or personal resources. As sales grow, options expand.

$0 to $500K–$1M (Pre-Launch/Early Sales)

Stage characteristics: No proven sales; focus on product formulation, DTC launch, initial orders.

Options:

• Friends & family loans
• Personal/corporate credit cards
• Local banks

Costs: Credit card rates (15–25%); fair rates for friends/family.

Advice: Avoid credit until sales are proven. Focus on healthy equity for launches.

$1M–$5M (Early Growth)

Stage characteristics: E-commerce humming; first POs from wholesalers; larger production orders/MOQs.

Options:

• All previous options
• Revenue-based financing (e.g., Shopify Capital: $30–100K short-term loans)

Costs: High teens to low 20s% (Shopify); 25–50%+ for other RBF products.

Advice: Good for quick capital without hoops. Doesn't scale well. Push limits of early options before moving to RBF.

$5M–$20M (Scaling)

Stage characteristics: Raised some equity; omni-channel expansion (e.g., Sephora/Ulta POs of $250–500K); customer acquisition figured out.

Options:

• Asset-based lending (revolving line against AR/inventory)
• Some equity for marketing/team

Costs: High single digits to mid-teens %.

Advice: ABL is scalable for large POs and avoids tight MCA/RBF paybacks. This is the sweet spot for growth financing.

$20M–$50M+ (Mature/Profitable)

Stage characteristics: Consistent profitability; tightened books; in-house accounting team.

Options:

• Traditional bank financing (ABL or cash flow loans with covenants)

Costs: Mid-single digits to low teens %.

Advice: Cheaper but requires maturity. Maintain covenants carefully.

Why ABL Stands Out

Unlike innovations like revenue-based loans, payables-based loans, or merchant cash advances, ABL is "time-tested" and resilient to market volatility.

Key advantages:

• Revolving structure grows with your business
• Based on tangible assets, not revenue projections
• Lower cost than RBF/MCA
• Lender incentives align—they want your assets to be worth something

Dwight Funding is an example of an ABL provider focused on the lower market ($1–5M facilities) in food, beverage, and emerging consumer brands. They launched in 2015 amid the rise of Instagram as a sales channel and DTC explosion. Their differentiators:

• Modernized ABL with fintech elements
• Emphasis on not over-leveraging businesses
• Long-term relationships (know brands 1–2 years before engaging)
• Stable product amid lender churn

They don't require specific equity amounts or investors—they've worked with bootstrapped brands like Hero Cosmetics for 8–9 years and VC-backed ones pre-launch. What matters is appropriate capitalization for launches (marketing, team, branding).

The Danger of Over-Leverage

Revenue-based lending can be a "sickness" on the industry when it leads to over-leveraging. When revenues spike, lenders offer more capital. When revenues dip (supply chain issues, iOS 14 marketing changes, seasonal slowdowns), businesses are stuck with high repayment percentages.

The loop: Need cash → More RBF/MCA → Higher % pledged → Less cash for growth → Slower revenue → Need more cash.

Lenders shouldn't be the "last dollar in." Always maintain equity runway as a buffer.

Financial Operations Best Practices

Invest in Accounting Early

It's not a cost center—hire outsourced CFOs/groups from the start. Build accurate financials as your business "health check." Level up at inflection points ($1M, $10M, $20M+).

AR Collection Focus

DTC-to-omni-channel shifts require new muscles. Common misstep: ship product but forget collections.

Tactics:

• Identify AP departments at retail partners
• Invoice promptly
• Check status before due dates
• Follow up systematically

13-Week Cash Flow Forecasting

This is critical for growth-stage businesses. The process:

1. Start from cash flow statement
2. Adjust for one-timers (inventory buys, loans)
3. Project inflows (sales minus discounts, AR terms)
4. Project outflows (AP terms, payroll, rent)
5. Include financing (interest, principal payments)

Granular forecasts highlight shortfalls for proactive fixes: extend AP, shorten AR, delay non-essential spending.

Dwight Funding has a practical guide to setting up this model.

Use Industry-Specific Professionals

Generalists are okay if they understand nuances (chargebacks, reconciliations, CPG-specific metrics). Fractional CFOs offer valuable benchmarks:

• Marketing spend as % of net revenue
• Cost of delivery comparisons
• Gross/contribution margin targets

Quick flag for expertise: Look at their chart of accounts setup. Wonky structures (e.g., unsustainable 28% fully loaded delivery costs) signal need for specialists.

Future Outlook

Bullish sentiment: Consumers have discretionary income. Post-COVID survivors are stronger—they navigated supply chain issues, tariffs, iOS 14 changes. Differentiation is key: quality products, targeted messaging.

Founder sophistication is increasing: Equity is tougher to raise, so founders run leaner with less frivolous spending. They know their metrics (gross/contribution margins) and understand growth isn't guaranteed by trailing data.

Next 5 years: Upside from resilient brands and savvy founders who've learned to be capital-efficient.

Key Takeaways

1. Match financing to your stage: Don't use ABL when credit cards suffice; don't use MCAs when you qualify for ABL.

2. Avoid the over-leverage trap: Say no to top-up offers when you're mid-repayment. Finish what you started.

3. ABL is the workhorse: For widget-based businesses between $5M–$50M, it's the most stable, scalable option.

4. Build business credit early: But understand it won't replace the need for specialized growth financing.

5. Invest in financial operations: Accounting, AR collection, and cash flow forecasting are competitive advantages, not cost centers.

6. Finance with the "right amount of debt": Lenders offering you more money isn't always a good sign. It might be a trap.