Business

How to finance business expansion: 3 ways that work

finance business expansion

Outlines how to finance business cleverly with three strategies designed to get your business boom under way: investment, crowdfunding and loans.

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Deciding to expand your business is a big step. It signals there is success in your endeavours and that it’s time to move to that next level. And while the timing may be right, and all the signals are there to tell you it’s time to expand, it doesn’t mean it’s easy to come up with the money. Expansion could include renting a bigger space (higher rent to pay); purchasing new machines, tools, and equipment; hiring on more staff; purchasing more raw materials; and more. So how can you finance all these essentials?

3 ways to finance business expansion

There are actually a number of different paths you could take in order to finance that all-important business expansion, and sometimes it’s not a matter of one “right” answer, rather it is a combination of solutions that offers a more customised approach. So here are some popular options you can look into.

Apply for a business loan

Perhaps one of the most common ways to finance your expansion is to apply for a business loan. For small businesses, you’ll want to look at small business financing options, as these differ in comparison to those for large corporations. These styles of loans typically range between £5,000 – £100,000 and are meant to be used for a variety of purposes – including expansion.

To make things really simple there are some loans you can apply for online, which means you don’t even have to make an appointment and head to a branch or office. This can make the whole process smoother, quicker, and easier all-around. It also means it’s that much faster to receive an answer on whether or not you’re approved for the loan.

Keep in mind with a business loan you have to be sure that the business can afford the repayment terms with ease, meaning the weekly, bi-weekly, or monthly payment that has been set up. Some of these loans offer a flexible repayment schedule, which can make more sense for businesses.

Try working with investors

While this may not apply to all businesses, working with investors can be another great way to finance the expansion. Venture capital funding can prove to be extremely fruitful. You may even seek out your own investors or a private/angel investor.

The important thing to note is that if you do go this route you still need to have a full business plan drawn up to show investors. They will want to know the exact cost of the expansion, how you plan to invest that money immediately as well as in the future, and what the forecasted growth/return will be for the business.

Investors will also ask for a stake or equity in your company, so you need to be willing to give that up, and hold enough equity to go ahead with this plan. You may already have quite a few partners/investors and could be close to maxing out your equity.

Crowdfunding – the modern approach to financing

Of course, we can’t talk about financing without mentioning the newest and most modern trend which is crowdfunding. Crowdfunding basically gets a bunch of people interested in your plans and asks them to invest in the expansion. Through this network of people, often called “micro investors”, you can start to raise your funds and hopefully come up with enough money.

The key to this being a success is that you need to generate enough buzz that you get a lot of people investing.

Choosing the right option for your business

When it comes to choosing the best financing option for business expansion, it truly differs from company to company, industry to industry. The more information you can gather on the various sources of financing, the easier it will be for you to make a decision.