Are you looking for ways to finance your business expansion? Whether increasing inventory, opening a new location, or adding more staff members, financing can be the make-or-break step in expanding your business. This article discusses the different methods of financing that might suit your needs and help you reach your goals.
Loans
Business loans are available in many forms, including SBA (Small Business Association) and conventional business credit lines. Firms of all sizes can use loans to finance a broad range of business activities.
For small business loans, look for a lender that offers:
- A quick and easy loan application process
- Longer repayment periods, giving you more time to pay off the money borrowed without too much stress
- Competitive interest rates
- Flexible repayment plans
SBA offers government-backed bank loans with low down payments for small businesses. Small Business loans are an excellent way for small businesses to finance their growth.
Conventional credit lines are an excellent source for small or medium-sized businesses. Note that the amount of money you can access is limited only by your creditworthiness and the requirements are also less stringent than those for SBA loans.
Loans have higher interest rates than other forms of financing, but you get the money quickly. For some loans, you don’t need to provide collateral.
If you’re looking to expand your business to a booming state such as California, a land development loan is ideal for persons looking for financing to develop land, construct commercial buildings, or multi-family residential complexes. These loans are available for up to 80% of the total project costs.
Grants
Securing any grants available to you is a great way to finance your business expansion as they have lower interest rates, or the money is given out without having to pay it back. A grant can be used for a variety of purposes, including hiring new employees or growing inventory.
The federal government offers several grants specifically designed for small businesses that want to expand their operations. An example is the Small Business Innovation Research (SBIR) grants which are given to small businesses that want to conduct scientific research and development.
Angel Investors
Angel investors are an excellent source of financing for small businesses that want to expand their operations. Because these individuals invest in companies they believe in, you need to present a business plan and solid financial projections before receiving any capital.
Angels can finance your company’s expansion through various methods. These are equity investments, convertible debt, or even revenue-sharing agreements that take a percentage of the revenue generated. If you decide to work with angel investors, prepare your pitch deck in advance and be prepared for multiple meetings before securing any funding.
Profit Plowed Back
This type of financing is a popular choice for start-ups and small businesses that want to finance their expansion with their revenue. The profit plowed back means you’re using money from your business operations to fund growth rather than borrowing it or taking investment capital.
Typically, these funds are used by companies as working capital. It is an infusion of cash that allows them to increase inventory or purchase equipment as they expand.
For example, if your company had sales revenue from previous years and those profits were plowed back into the business rather than distributed among shareholders. You can use this money for growth purposes. Since these funds are used internally, there may be a limit to the amount you can borrow.
Contributions
Contributions are an excellent way to finance your business expansion as they don’t have any interest rates or repayment plans, meaning you can pay them back anytime. You can also draw contributions from several sources at once.
For instance, one grant could provide the bulk of your financing while another provides a small percentage. These funds are typically used to finance working capital or equipment acquisition.
Personal Sources
If you’re already a successful business owner, it’s possible to use your savings as capital for the new expansion. For example, if you have over $500K or even at least $100k in liquid assets such as stocks and CDs. These can be converted into cash quickly to finance a business expansion.
There are several financing options you can choose from to finance your business expansion. Choosing the best option depends on various factors such as market conditions, company growth, and available capital. The key is making sure that this next step in your expansion doesn’t leave you stuck with debt that your business can’t repay.
