If you want to grow your business, you’ll need to learn how to fund an expansion – unless you have tons of money set aside to expand your business. And some people do. But if you’re like the rest of us, you’ll need some capital to get going.
So, how exactly do you fund an expansion?
How do you access the money you need?
What steps are involved?
We’re answering all those questions in today’s blog. Keep reading to learn everything you need to know about funding an expansion.
How Much Will It Cost?
The first question in your mind is probably how much your expansion will cost. As mentioned before, you’ll need some capital to expand your business. Exactly how much you’ll need is the question. Past revenue statements and balance sheets can help you determine that number.
Are you building your new location? Will you need to lease new office space? Will you need to hire staff? What about extra inventory?
Determining those costs and how long it will take you to break even after your investment will help you know how much capital you need to request for your expansion.
Watch Your Credit Score
You’ll want to keep a close eye on your credit score, whether you’re using your personal or business score. You want those scores from all reporting bureaus to be as high as possible. Making on-time monthly payments is the best way to boost your scores and/or keep them high.
Your credit score is critically important if you want a business loan, as lenders will want to see good patterns of on-time payments and low credit usage as a security blanket before lending money to you.
This is also a good idea to check your credit report for inaccuracies. You can report them to the credit bureaus and have them removed from your record if you can prove they weren’t yours.
Look at Funding Sources
The next step in funding an expansion is to look at funding sources. You can choose from several options, including personal investments, current profits, credit cards, borrowing, and investors.
Personal Investment
A personal investment is simultaneously the safest and riskiest funding source for your business. You don’t need anyone’s permission to fund it yourself. There’s no repayment, interest rate, or other associated fees. However, you are risking your own money, which can be understandably nerve-wracking!
Another option is withdrawing money from your IRA (Individual Retirement Account). When replaced within 60 days of withdrawal, there’s no taxation or penalization on the money you’ve withdrawn.
One thing we don’t recommend is investing all your money into your expansion. If you want to use some personal funds but don’t have enough to fund the entire expansion and have savings left, consider using some of your personal money and using a second funding source for the rest.
Current Profits
If your company is soaring with profits, you can use that to fund an expansion. This is another great route if you don’t want to use personal funds but don’t want to borrow money that comes with interest and fees.
However, it’s essential to exercise caution when taking this route. As great as it is not to need to borrow money or dip into your own, you won’t want profit use to interfere with your current operations.
So, if you take this route, ensure you have enough money left over to continue running your business. Knowing you can fund an expansion and stay on top of operating expenses is a great feeling!
Credit Card
If you have a high limit on your credit and only need a little money to fund your expansion, a credit card is a perfect choice. Just be sure to pay the balance in full before the due date, or you’ll pay interest. And credit cards are known for having high-interest rates. We don’t want you to have to deal with that!
If you aren’t able to pay the full balance before your statement, a small business loan might be a better option. You can likely borrow the amount you need with much lower interest rates.
Borrow
Your first thought is probably borrowing money from a lender, such as a revolving credit loan, balloon loan, or interim loan. You could even use personal property as collateral for your loan.
And while this is a solution many business owners choose, you can also request personal loans from friends, family, colleagues, and fellow business partners and owners. You can draft written documents with repayment plans to give your lender peace of mind that this is a loan, not a handout.
Investors
Yet another option is to find investors for your expansion. You have two options here: angel investors and crowdfunding.
Angel investors will lend you money with the expectation that their investment will yield more than they’ve invested. For example, they might lend you $20,000 if you agree to pay them back $25,000 once you break even and profit from your expansion.
Angel investors are difficult to secure because you must convince them that their investment will yield enough to pay them a big return. Competitor analyses, market assessments, sales plans, etc., will help you attract angel investors.
Your other option, crowdfunding, is a popular option these days. Simply post your project to an online crowdfunding site, and convince strangers to invest in your expansion. This does include convincing individuals to invest in your company. A clear expansion plan with benefits for your investors will pique interest and help you secure funding.
Fund an Expansion with Lighthouse Financial.
Lighthouse Financial is a great way to fund an expansion without breaking the bank, drying out personal resources, or paying excessively high monthly rates. Our expansion funding comes with low rates, low monthly payments, flexible plans, and approval dates. We won’t leave you hanging or hit you with high fees and rates!
We’ll take you through a three-step process that won’t hurt your credit score to determine if Lighthouse Financial is the right fit to fund your expansion. Contact us today to get started!