Small business owners often face the challenge of financing a business expansion. There are several ways to do this, and the best option depends on the business’s specific circumstances.
According to the U.S. Small Business Administration, small businesses account for 99.7 percent of all firms in the United States and employ half of the private workforce in the country. That’s much competition for a limited amount of resources, so small business owners need to be strategic about financing their growth.
You may not be sure about the most effective way to finance your business expansion. That’s why we’ve put together this list of five options for you to consider.
Borrow From Lending and Financial Institutions
If you’re taking business expansion into consideration, your first option may be to borrow from a lending or financial institution. This option is often the quickest and easiest way to get the money you need, as you can usually get the funds within a few days.
One advantage of borrowing from a lending or financial institution is that you can often get an excellent rate. The rates offered by banks are usually lower than those offered by other lenders, such as online lenders. You need to find the most competitive business loan from bank institutions you trust.
Another advantage of borrowing from a bank is that they are more likely to be understanding if you have a poor credit history. It’s true because the government regulates banks, so they have to follow stricter guidelines than other lenders.
Borrowing From Friends and Family
When you’re looking to finance a business expansion, your second option may be to borrow money from friends and family. This is often a quicker and easier way to get the cash you need, as you can usually get the funds within a few days.
The good thing about borrowing from friends and family is that there are no interest rates or fees. However, you may need to offer your friend or family member a stake in your business in return for the loan.
One disadvantage of this, though, is that there is no legal agreement. This means that if you don’t repay the money, your friend or family member may not be able to take legal action against you. But it’s imperative that you know how to be a responsible borrower. That’s crucial because they may be the ones to help you again in the future. Breaking their trust could mean not only the end of this particular transaction but also future opportunities.
Using Your Savings
Sometimes, you just have to look at the things you already have. Maybe, you already have enough savings to finance your business expansion. Using your savings for this venture is also one of the fastest ways to get the money you need for your business expansion.
One advantage of using your savings is that you don’t have to pay interest or fees. However, you may need to dip into your savings account, which could affect your finances.
Another advantage of using your savings is that you don’t have to answer to anyone but yourself. You can use the money as you see fit, and you don’t have to worry about repaying borrowed money.
Seeking Out Venture Capital or Angel Investors
Another option that may be very helpful for you is seeking out venture capital or angel investors. Startups can often get quick backing from angel investors. But they can also provide capital for businesses that need to expand.
The most significant advantage of seeking out angel investors or venture capital is that you can usually get the money you need quickly. This can be a substantial boon for businesses expanding rapidly and needing the capital to do so. Additionally, these investors can offer valuable advice and support to help your business grow.
Selling Equity in the Business
You can look into selling equity in the business as an option to finance your business development. This has several advantages over other methods of financing:
- It allows the business to raise a large amount of money relatively quickly.
- It does not require the business to take on any new debt, which can be risky.
- Equity investors are typically more patient than lenders, which can be helpful if the business is encountering some bumps in the road.
There are many ways to finance a business expansion, and the best option depends on the business’s specific circumstances. Each of the options mentioned has its benefits and drawbacks, but all of them can be helpful in the right situation. The most important thing is to carefully consider all options and make the best decision for your business.