Did COVID-19 increase the demand for your product or service? Are you looking to EXPAND your business now? You may need more employees. You may need additional equipment – everything from more computers to a backhoe. Maybe your product is selling out at your flagship location and you want to open a second location.
If you’re one of the businesses flourishing during the Coronavirus pandemic, congratulations! Companies like yours are key to the economic growth of the country.
These are good problems to have, but expansion requires money. What happens if you don’t have the capital? Well, it might be time for business expansion funding.
When should you consider a business expansion loan?
Business expansion funding is exactly what it sounds like – a loan to expand an existing business. It is not seed money, a term used for an initial sum that allows a business to get off the ground.
Lenders of business expansion funds require borrowers to have an existing business already in place. They offer loans to help already viable businesses become larger or more productive. Having said that, some lenders — such as OnDeck, Funding Circle, and Kabbage, provide business loans for a wide variety of purposes.
Getting business expansion funding
Naturally, getting a business loan requires you to submit an application. Lenders will want to see:
- Profit and loss statements
- Tax forms
- Financial records of the business
- Legal documents that reveal the structure of the business (corporation, partnership, etc.)
- A business bank account
- Business credit score
- Business plan
- A statement of loan purpose
Lenders also require personal financial records and credit score.
Credit Scores and Business Loans
A word about credit scores and reports: They are an important part of any loan application. Both business and personal credit scores are an indicator of whether you pay bills on time and manage credit wisely. Lenders want to know whether you have too much debt for the income of the business.
So it’s a good idea to look at your credit score – and to make sure the information in the credit report is correct – before applying for a loan.
You’ll need a business plan
Businesses need a business plan to get loans. Really, all businesses should have one. Most entrepreneurs are eager to launch their businesses, but not particularly excited about doing financial projections. If you haven’t written a business plan before, you need to have a plan ready for what you’re going to expand with your business expansion loan.
A business plan should include the following:
- A Company Description (including type of business, e.g. partnership, corporation, etc.)
- Service(s) or Product(s) Offered
- Background and Personal Financial Statements for Principal Officer(s)
- Company Financial Statement
- Market and Industry Analysis
- Marketing Plan and Sales Strategy
You can see why this is useful to a lender; the business plan will reveal the success of the current plan and why you think expansion is a good idea. If you are selling a chocolate yogurt drink and want to add a second flavor (say, vanilla), the Service or Product Offered section is the place to explain that.
Similarly, the Marketing Plan and Sales Strategy can explain why expansion is a good idea. Is your service successful in one part of the city? Then detail why it would be successful in another area if you add additional locations.
In order to determine how much capital you’ll need to expand, you must forecast the associated costs. For a retail expansion, for example, you’ll need to acquire estimates for: leasing space, building out your location, hiring staff, and procuring additional inventory. Perform a break-even analysis to determine how long you’ll need to support your new venture before it becomes profitable.
The good news is: this isn’t your first time around the block. Since you already have the experience of launching your first location, it will likely be much easier to forecast costs the second time around.
Determine how much you need
For a business expansion funding, you’ll need to determine how much you need from a lender. Use existing business records to forecast how much you will require. Are you opening a new location? Use the numbers from your first location to help forecast the costs.
Then, estimate how much the expansion will bring in. How much revenue can you expect from the new location? How much will the new equipment contribute to the bottom line?
Offering your lender with both your financial need and expected revenue will instill confidence in your expansion plan.
Types of business expansion loans
Business expansion loans are offered with two different types of interest rates.
Fixed means that the interest rate – and payments – will be the same throughout the life of the loan.
Variable means that the interest rate may rise or fall depending on changes in market interest rates. If it rises, your monthly payments go up. If it falls, they go down.
Business loans can be:
A secured loan is backed by collateral, which lenders can sell or reuse if the borrower is unable to pay back the loan. A lender may be willing, for example, to offer a secured loan backed by the equipment the loan is used to purchase.
An unsecured loan is not backed by collateral. It is approved based on creditworthiness and other financial indicators.
Where can you get a business expansion loan?
Traditional lenders such as banks and credit unions often take several weeks (or more) to process a business expansion funding.
If you need money more quickly to capitalize on an opportunity, alternative lenders typically have shorter approval times.
One popular alternative lender to consider is The Collective Lending Group, which will qualify lenders needing a minimum loan amount of $200k, and does not have a maximum. Some of their lending partners have access to funds over $1B
Need Funding for an Expanding Opportunity?
Visit BusinessExpansionFund.org to apply for Business Expansion Funding today!