4 TIPS TO GAIN BUSINESS EXPANSION
BY JAKE CROMAN
EVERY BUSINESS NEEDS CAPITAL TO EXPAND THEIR GROWTH AND BROADEN
THEIR POTENTIAL FOR SUCCESS. ONE MAJOR PROBLEM IS THAT MANY
STARTUPS DON’T ALWAYS HAVE EASY ACCESS TO THE MONEY OR THE
SUPPORT TO RAISE THE NECESSARY FUNDS AND GROW THEIR EXPERT IDEAS.
IT’S ONE REASON WHY NEARLY 80% OF STARTUPS FAIL BEFORE SURPASSING
THEIR FIRST FIVE YEARS.
YET, APPLYING FOR BUSINESS EXPANSION FINANCING CAN ULTIMATELY HELP
SAVE YOUR COMPANY FROM BECOMING ANOTHER STATISTIC IN THE
FUNERAL PILE OF DEAD BUSINESS ENTERPRISES. FROM COMPANIES LIKE
LIGHTER CAPITAL THAT OFFER REVENUE-BASED LOANS TO SERVICES LIKE
BOLSTR THAT HELP SMALL BUSINESSES RAISE CAPITAL FROM INVESTORS,
KNOWING YOUR COMPANY’S MONETARY WORTH IS ESSENTIAL WHEN
SEEKING FINANCIAL HELP.
THESE FOUR TIPS TO SECURE
BUSINESS EXPANSION FINANCING
CAN HELP SAVE YOUR SMALL
BUSINESS EMPIRE WHILE SETTING
YOUR FINANCIAL DUCKS IN A ROW:
1. REVIEW THE LENDER’S
STRIKING A DEAL
Before preparing your application, small business owners
should review the lender’s requirements to determine
what works best for your business’ expansion. Since the
process can be extremely long and tedious, both parties
could waste time and energy if they haven’t reviewed the
lender’s policies to see if it’s the best fit for their
business. Make sure you review the financial metrics
used by a specific lender or banking institution so you
understand how they make lending decisions before you
apply for the loan. As you apply for expansion financing,
you’ll need to demonstrate to lenders that your small
business generates a positive cash flow and that you can
repay any debts in the future. Lenders also want to make
sure you don’t have too much debt. Often, lenders use
the debt service coverage ratio, a quick ratio, and a
current ratio to calculate a company’s liquidity and ability
to repay their debts. However, small businesses can
determine these ratios beforehand so they can appear
more desirable and confident before securing a loan.
These liquidity ratios can help entrepreneurs manage
their assets clearly.
REVIEW THE LENDER’S REQUIREMENTS BEFORE STRIKING A DEAL
WAYS TO DETERMINE THESE FINANCE RATIONS ARE AS
Find your company’s
current assets and
liabilities. Divide the
assets by the liabilities
to get the ratio.
Find your current assets,
liabilities, and inventory
value on your company’s
balance sheet. Subtract
the inventory from
current assets. Then
divide the result by the
On your balance sheet,
determine the current
securities, and cash. Add
the cash value to
Divide the result by
2. CLEAN UP YOUR FINANCES
Many entrepreneurs make the mistake of not
having their financial statements in order before
they try to secure their loans. In the early stages of
business, many companies try to use self-finance
methods or limit spending. However, try to invest in
an accountant and/or accountant software before
seeking expansion financing. Even if it’s for a limited
time, hiring an accountant can help you get your
financial affairs in order and keep track of your cash
flow. If your records show disorganized
bookkeeping, it’s hard for financial lenders to see
how the business performs. Some businesses don’t
require audited financial statements, but offering
insight into accurate financial statements can help
both parties consider how they will use and stabilize
their business with expansion financing.
Maintaining and keeping track of a clean financial
portfolio can help speed up the application process
and improve your chances of securing capital.
3. PREPARE THE ESSENTIAL
When you go to apply for a loan at a bank or a lending
institution, make sure you’re prepared and organized.
Acquiring and filling out the essential documents will help
small business owners look prepared and well-organized.
Having the correct information for a lender when they ask for
a detailed status of your business finances is essential. It also
helps show lenders that you’re conscientious to complete the
process responsibly. It’s crucial to prepare financial statements
and financial projections for 12-18 months in the future. This
information helps highlight how finances can produce cash
flow to repay loans.
4. BORROW THE MINIMUM AMOUNT
A word of advice to emerging businesses; only borrow the least amount of
money you need to avoid unnecessary, excess debt. In fact, it’s common to let
finances get out of control. Today, 49% of all small business owners are in debt.
Roughly 20% or less of your sales should go to debt servicing. Any debt
repayment above 20% is considered a warning sign for small businesses since
your cash flow is repaying debts and not reinvesting it back into your business.
It’s reasonable to assess alternate routes to gain capital instead of securing a loan
to expand your enterprise. You may want to consider improving terms with
suppliers, throwing fundraising events or setting up online funding campaigns.
Selling equipment and materials or downsizing your location are ways to finance
improved operations and save money. In addition, looking for investors in your
company can be a crucial way to secure networking connections and capital at
the same time.
SBA loan programs are frequently utilized by new
businesses. The 7(a) Loan Program offers up to
$750,000 from your local 7(a) lender, backed by a
partial guarantee from the SBA. See if your business fits
the eligibility guidelines. The SBA Express program
focuses on lenders with a good SBA-lending track
record. It's a way for small business owners to gain
money — in up to $250,000 — quickly. In addition, the
504 Loan Program offers funds for asset purchases,
such as land or equipment. If you’re looking for a small
loan of up to $35,000, the 7(m) Microloan Program
might be the way to go.
HOWEVER, VARIOUS ALTERNATE WAYS TO
SECURE CAPITAL INCLUDE:
Small Business Loan Programs:
A trade credit can be a beneficial tool for financing
expansion. Trade credit allows businesses to buy now
and pay suppliers later. Using trade credit can have some
drawbacks like interest, so make sure to communicate
ways to negotiate terms with your suppliers.
DPOs allow you to sell stocks directly to the public
without registration and reporting requirements. It’s
specifically designed to allow small businesses to access
public capital markets at a lower cost and complexity
than an IPO. In general, they raise less than $1 million,
but in some cases can raise over $25 million.
HOWEVER, VARIOUS ALTERNATE WAYS TO
SECURE CAPITAL INCLUDE:
Direct Public Offerings (DPOs):
Finding an angel investor — individuals who offer
financial support in exchange for ownership equity or
convertible debt — can be a great guiding force for your
business. Utilizing online lending networks and like
Prosper or OnDeck, along with the Angel Capital
Association, the Angel Investment Network, or even
Chamber of Commerce directory to find an angel
investor can help you secure capital.
IT’S BEST TO CONSIDER STRATEGIC ALTERNATIVES BEFORE YOU
SETTLE ON ACQUIRING AN EXPANSION LOAN AS A LAST RESORT.
BONUS TIP: ALWAYS
After you decide finding a lender is the right step, remember to be clear and specific
about how you will use expansion funds when you speak with your financial lender.
Offer insight into why the money is needed, why it’s needed, and what the plans to
generate more income with the loan. For example, relate how the $20,000 you’re
borrowing in loans is helping to raise $200,000 in sales. It’s important to highlight how
the expansion finance can repay itself during the lifetime of the loan.
Once you determine expansion costs, you can find the correct type of loan plan for
your small business. Whether it’s savings, angel investors, venture capitalist, or loans,
there are many options for expansion financing. In time, a loan could help be the wind
under the expansive wings of your business growth.
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