The Best Way to Fund Expansions for Your Small Business
Expansion by increasing your product offering or adding a retail location is the next step once your business is running smoothly. But before you can invest in your business’ growth, you need financing. Finding a source of money is especially tricky for small business owners because traditional lenders often find small businesses too risky to finance. Fortunately, it’s easier for existing small businesses that are in great shape to receive financing than start-ups. The best way you can go about finding funds for business expansion is to first make sure that it’s ready.
Evaluate Your Business
Remember that success at your original location does not guarantee success somewhere else. Without bias, do you really think that the best financial choice for your business right now is an expansion? If your presence was a huge factor for the success of your existing location then it might not operate as smoothly if a new location is added. Take this time to clean up your financials and check both your personal and business credit scores. These documents will tell you a lot about how ready your business is for expansion and you’ll need them later on when you seek to finance.
Conduct Market Research
You need to define your target market before you can proceed with expansion because this is where you’ll base your marketing strategy. Conduct useful market research and implement your findings with your expansion plan.
Estimate The Costs
You need to forecast the costs of expansion before you can determine the capital you’ll need. Doing so will make it easier for you to know the funding amount to apply for. You can make use of the balance sheets and revenue statements from your current business location as a basis for the financial projections in the new location. You’ll likely present these when you apply for funding so make sure your financial claims can be supported.
There are many different types of financing sources, each with their own advantages and disadvantages. You can determine which option is best for your business by looking at your expansion plan.
For small businesses, the best way to fund expansions is usually through alternative lenders or non-bank financing. Alternative lenders offer a huge array of advantages over traditional, bank loans. For one, it’s easier to obtain a loan since alternative lenders specialize in funding small businesses. The approval rate for bank loans is around 13-20 percent for small businesses whereas alternative lenders have an approval rate of 61-64 percent. Personal and credit score requirements are also lower than that of bank loans. Alternative lenders require less paperwork while providing faster funding, more flexibility, and less hassle. Advance Funds Network (AFN), for instance, is an alternative lender that can quickly support the expansion of your business in terms of financing. If you need capital immediately, AFN can provide funding as soon as 1 business day and they offer business loans of up to $3 million.
Traditional lenders usually refer to banks. Although conventional bank loans typically have low approval rates especially for small businesses, the greatest advantage is that interest rates are low. Banks also offer a lot of different options for financing, depending on what your business needs. You might also have to present collateral before you can obtain financing from the bank.
You don’t always need a loan to expand your business—you can also make use of your business’ retained revenue. The greatest advantage of using internally generated funds is that you don’t have to worry about paperwork, approval, or interest rates. However, it will take a time to gather enough funds for expanding your business. You might also divert too much of the profits to the expansion that you overlook or disregard some important financial matters in your existing business. This may lead to conflicts that can derail your efforts to expand.
Before you look for financing, there are a couple of things you must do to prevent your business expansion from backfiring — causing financial instability instead of growth. There are many different financing sources you can choose from but alternative lenders are often the best choice for small businesses.