Business Expansion Loan Options
August 8, 2022 | Last Updated on: February 1, 2023
August 8, 2022 | Last Updated on: February 1, 2023
In this article:
Starting a business is an experience that is both terrifying and rewarding all at the same time. Once a small business owner has built a successful operation, the next goal is growth. But that’s where things get tricky—there might be significant risk of expanding too fast and overextending your team! But there is risk in waiting too long and missing out on the additional revenue that can come with expansion.
So, how do you know when it’s time to expand? The answer depends on many things, including the industry you’re doing business in, your personal business goals, current business debts, and more. There is no exact science to timing an expansion, but we’ve narrowed down a few good indications that it’s time to consider it.
As the demand for certain products or services increases in an industry, it is likely that the demand for your products or services is also growing. Learn to pay attention to the market trends. If you’re working in an industry that’s quickly growing, you should do your best to grow with it.
If you have been generating a profit most months for 2-3 years, it’s probably time to consider growing your small business. Making money probably made the list of top goals when you first created your business plan, but now you’re there. Consistent profitability and positive cash flow are great indications that your business plan is working and will continue to work on a larger scale. So maybe expansion is a smart next step.
Great employees can be hard to come by. If you have found a staff that is loyal and hard-working, they may be the right team to accept the challenge of growing your business and supporting you in your expansion goals.
Have you built a base of loyal and regular customers? Are they asking for new products, more hours, and additional services? If you find yourself wishing there were more hours in the day or more employees clocked in to help meet your customer needs, it’s time to consider expanding.
Are you stacking banker boxes on your kitchen counter or meeting with new customers in a rented space? If you’ve literally run out of room, you should consider which type of expansion will best suit your small business.
When folks think about expansion, they often envision a grand opening at a new location. But there is more than one way to grow your business. The type of expansion that is best for your business will depend on your finances, goals, and customers, but we’ve listed a few of the most common ways to expand.
Internal expansion can occur when a small business wants to grow but is not looking to open a new location. There are many ways to increase annual revenue without breaking ground on a new store two towns over. Entrepreneurs have had great success expanding internally by offering new products or reaching new customers.
To expand your business and increase revenues without a major overhaul, consider adding some new products or services. This is a great way to slowly expand your business and leave yourself plenty of time to adapt to the change. There is no need to launch an entirely new product line, simply look at your business model, and ask yourself a few questions:
Maybe you run a hot dog shop, but notice families are often asking about ice cream. Or maybe you have a bookkeeping business out of your home office and can add some document storage services to your packages. There is a good chance you have already considered new products or services, but if you haven’t, consider doing some market research for ideas.
There are ways to grow your business by adding new customers or learning to sell more to the clients you already have. One powerful way to expand the business without a physical expansion is to review and update marketing strategies. If you are currently turning a profit at a small business and you rely on word of mouth to advertise, consider an email campaign or direct mail. Other ideas to reach new customers and encourage your current customers to purchase more include:
Horizontal expansion refers to the process of reaching a new market of potential customers. Most often, horizontal expansion requires opening a new location or acquiring another business, either the same type of business or a compatible product or service.
If you are the owner of a busy local shop or are running a business from your kitchen table, it may be time to consider a new location. Small business owners that are successful with one location because of neighborhood traffic will likely see the same type of new growth in an additional neighborhood. Similar growth is possible if your at-home business could reach a larger customer base with a brick-and-mortar expansion. If you’ve been making a living providing hair styling services from home, a location in a nearby strip mall just might double your revenue.
Purchasing another existing business can have a big impact on a small business owner’s net income. Taking over another business that has already established a customer base can help your business reach new customers and grow faster. If your acquisition involves purchasing a small business that provides similar products or services (buy out a competitor), it’s likely you will add to your customer base or be able to sell more to your current customers. If you chose to purchase a different type of business, the acquisition will allow you to tap into a new market and potentially profit from introducing your long-term customers to the new products or services.
At this point, you are probably on board to grow your business, but are wondering how in the world you can afford the costs associated with expansion. Whether it’s launching a new marketing campaign or acquiring the Italian Bistro down the road, you may benefit from exploring these small business financing options hand-picked for expansion.
A term loan is a type of traditional financing where the borrower receives a lump sum of cash upfront, like a commercial real estate or car loan. The repayment terms and down payment required are predetermined, and the monthly payments consist of principal and interest. Interest rates can be fixed, where they remain the same throughout the life of the loan or variable, which fluctuates with the market rate.
Term loans can be used for any expansion need or new business acquisitions. This type of loan is also useful for business owners looking to supplement seasonal cash flow or increase working capital for operating expenses. Business term loans are a great financing option for small to medium businesses that have a good credit history. For startup business owners that are concerned about qualifying for a term loan, a secured term loan may be the best option because it uses personal assets as collateral or a personal guarantee.
SBA loans are an excellent option for small business owners looking to finance an expansion. The U.S. Small Business Administration (SBA) works with preferred lenders to guarantee a percentage of the loan amount, which makes these loans more obtainable for small businesses that are not eligible for traditional financing. There are many types of SBA loans, each of which dictates maximum loan amounts, repayment terms, and permitted use of the funds. The most common types of SBA loan programs used for small business expansion include the SBA 7(a) and SBA Microloans.
A business line of credit is a type of revolving credit that works similarly to a business credit card. After their loan application is approved, borrowers have access to a maximum loan amount and can draw on it whenever they need fast funds. The repayment terms of a line of credit depend on the credit line and lender, but most revolving credit lines require an annual review of eligibility. Monthly payments are required and charge interest only on the amount of funds currently withdrawn.
Business lines of credit do not typically require that the funds be used for approved business needs, so they can be used for any cash needs like revenue fluctuations, repairing damaged equipment, launching a marketing campaign, new business acquisition, or hiring new staff. This type of business funding option works well for internal or horizontal expansion needs.
An equipment loan gives small businesses the capital they need to cover new equipment costs during any kind of expansion. Borrowers can get approved for equipment loans for the total amount of the equipment because the value of the purchase secures the loan. The repayment terms for equipment financing include monthly or weekly payment schedules and the length of the loan is typically determined by the useful life of the item. Equipment loans are a great option for borrowers looking purchase kitchen equipment, machinery, computers, software, vehicles, office equipment, and more.
The loans listed above are some of the most common types of financing used for expansion, but there are many more financing options for small businesses including invoice factoring, invoice financing, short-term loans, merchant cash advances, and commercial real estate loans. If you are considering funding options for your business’s expansion, consider using the following guide to find the best business lenders.
There are two primary lending options: traditional lenders and alternative, or online lenders. Deciding which option is best for your small business depends on your personal preference and the amount of financing your expansion goals will require.
Traditional lenders include financial institutions like banks and credit unions. Advantages to choosing traditional bank loans include lower interest rates, depending on creditworthiness, and a well-known brand. Disadvantages to these types of lenders include longer application and approval processes and stricter eligibility requirements.
Alternative lenders include private lending institutions, online lenders, and internet lending marketplaces. Advantages to working with an alternative lender include fast application and approval times and access to many different types of financing. Most alternative lenders offer a small business loan application process which is 100% online, which can be a huge advantage for some busy business owners.
The type of loan you are seeking to help your business grow and the lender you choose will determine the documents needed for approval, but having some standard documents on hand will save time during the application process.
Once you’ve gathered some preliminary loan support, it’s time to reach out to your preferred lender, complete the application, and get funded. Some online lenders, like Biz2Credit, can provide funding as fast as same day for qualified applicants.
Expanding your business or acquiring established businesses are big steps for any small business owner. Fortunately, you don’t have to go through the process alone. Reach out to an expert financing specialist today at Biz2Credit to start planning your small business expansion. After all, they were able to help Yousaf Razzak expand his Indian Restaurant, despite multiple obstacles. And it’s likely that they can help you too!