3 Simple Tips for Funding Your Business Expansion

By Ashutosh Jha → Last Updated on Thursday, January 24, 2019
Are you looking for funds to expand your business?

First, thumbs up for getting here! In a marketplace where 42% of small enterprises fail because of poor demand for their products or services, it means yours are selling well.

Now you need a capital injection to take your business to the next level. Maybe you’re planning to expand your product line, open a new branch, or even go global.

What are your funding options? In this article, we’re sharing tips for funding your business expansion.

1. Understand the Dangers of Rapid/Sudden Expansion

In theory, business expansion is a good thing. It’s a classic example of spending money to make more money. But, this is not how it always pans out.

A rapid, sudden, or poorly-thought-out expansion can have negative effects on a business.

For instance, using expansion capital to set up a branch in a new location can be a risky move. If the branch fails to deliver, you’ll lose a big chunk of the capital you invested.

As such, ensure you have a solid expansion strategy before you even start looking at your financing options. If you’ve no business expansion experience, bring in a small business consultant to help you map out an expansion strategy.

2. Know the Amount of Capital You Need

A common mistake entrepreneurs make is underestimating or overestimating the amount of money needed to fund your business expansion.

If you underestimate, you’ll raise less money, and the likely result is a stalled expansion — unless you go back to the capital market for more financing. And if you overestimate, you’ll raise more money than needed. When you have a capital surplus, it’s easy to misuse it.

Fortunately, capital estimation isn’t a problem when you have a well-thought-out expansion strategy. Again, a small business consultant can help you determine the amount of money you’ll need at each stage of the expansion.

Depending on your financing source, your ability to explain how you’ll use the money can go a long way in ensuring you get funded.

3. Identify Potential Sources of Expansion Capital

Armed with an expansion strategy and a good handle on your capital requirements, you’re ready to start looking for funding.

Here’s a breakdown of the various ways you can finance your expansion.

Use Your Net Revenues

Sometimes business owners look into external capital sources for expansion when they can afford to raise the money internally.

If you’re running a profitable business, chances are you can use some of your net revenues to fund the expansion. The best part about using your profits is you remain your own boss. Nobody will tell you how to spend the funds.

There’s a downside, though. Digging into your profits to fund an expansion can leave your business financially handicapped, at least in the short-term. If a client puts in a big order soon after you’ve pumped the revenues into the expansion, you might not have the money to fulfill the order.

This financing option is ideal when the amount of expansion capital you need is no more than half of your yearly net revenues.

Partner Up

Are you a sole or majority owner in the business?

If yes, partnering up can be an ideal way to secure expansion capital. All you have to do is find someone who is willing to inject the money into the business in exchange for an ownership stake in the company. This could be a friend, family member, or even another entrepreneur in your professional circle.

When partnering, it’s vital to go for someone who believes in your business and vision. If they don’t, that’s a recipe for disagreements which could wreck the business down the road.

Also, be sure to draw a partnership agreement outlining the responsibilities and liabilities of each partner. The last thing you want is to seek litigation funding to fight off a lawsuit from a disgruntled partner.

Get a Business Loan

For the longest time, bank loans were the go-to source of financing for most business owners. But, since the Financial Crisis of 2008 banks have been tightening the noose on small business borrowers.

Luckily, this has led to the emergence of funding companies and online lenders that specialize in making small business loans. What’s more, there’s a range of credit facilities, from working capital loans and equipment financing to business lines of credit.

This means if your expansion project involves investing in equipment and machinery, you should apply for an equipment financing loan instead of a general term loan. Given that equipment loans are typically secured (the same equipment is used as collateral for the loan), you’re likely to secure the loan at a lower interest rate.

Although small business loans are becoming more accessible, credit financing remains an expensive way to fund your business expansion. You have to pay back the money plus interest, and most business loans come with usage restrictions.

Find an Angel Investor

Angel investors are wealthy individuals who invest their own money in business ideas or young enterprises.

While angel money is ideal for business expansion, finding an angel investor who believes in your vision can be a challenging process. Because most of these investors operate individually (they rarely establish investment companies), you need good connections to find one.

Nonetheless, if you’re lucky enough to land an angel investor, you’ll get much more than money. They can offer you strategic business advice which can help your expansion plan become a success.

Funding Your Business Expansion Simplified

As an entrepreneur, your dream is to transform your small business into an empire.

But, business expansion requires capital, which is a scarce resource. Lucky for you, we’ve revealed top tips you can use to secure the funding you need to grow your business. Begin by crafting an expansion strategy, then identify a source of funding that best suits your needs.

All the best and keep tabs on our blog for more business tips and insights.

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Ashutosh Jha

Ashutosh Jha is a professional blogger, Blog and IT Consultant. He writes about Blogging, SEO, Making Money, Internet Marketing and Web Design.
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