Most business owners aim to expand at some point. They understand the importance of growth and expansion to reach their bigger goals. However, growing your business means that you need to have funds to cover the expenses, which can be pretty challenging.
According to a survey, only 49% of businesses that applied for funding loans were approved. The 52% were rejected because of the following reasons:
- The company is too new to expand
- Poor business credit history
- Lack of documentation
So what exactly can you do to raise funds for your business? Let’s find out.
Develop a Plan
Before we talk about the various ways of sourcing funds, let us first discuss the importance of planning. It’s the same as your initial business plan, but the only difference is that you have a particular goal here, to grow.
At this point, you need to build strategic plans to implement actions to expand your business. This involves integrating innovation, hiring new employees, renovating your workplace, and many more. But the most crucial part has enough funds to do so.
Pay attention to your financial forecast, which is a vital element in your growth plans. By doing this, you get to understand how much money you need for your specific needs. It will also help you manage your financial resources properly.
Having a thorough procedure for distributing funds is an excellent way to convince lenders and investors of the reliability of your plan. However, your plans may change over time. But thinking ahead is crucial to ensure that you use your funds accordingly to prevent the lack of money.
That said, here’s how to fund your business expansion.
Funding Your Growing Business
Applying for a bank loan is often the first choice of business owners because it provides long-term payments. In other terms, they can pay off their loans monthly. What’s more, bank loans offer medium and long-term finances. They set a fixed period for payment (typically 3, 5, or 10 years) so that you will not have a hard time paying off loans.
However, the bank may require some kind of security or collateral for the loan. Depending on the amount you’re borrowing, you may need to use your vehicle, real estate property, and corporate bonds as your collateral. Take more, however, that you cannot use a real estate property, such as a house, as collateral if you’re still paying it to the mortgage lender.
Bootstrapping is simple. Here, you need to finance your business with your own funds, like your personal savings, loans, credit cards, or credit lines. The good thing about bootstrapping is that you will still have full ownership of your business. But it can be pretty challenging, given that you need to produce as much revenue as fast as possible to keep the business moving.
Friends and Family Financing
This is probably one of the easiest ways to get more money for your business. Friends and family financing is when your loved ones give you a form of a loan with minimal or no interest at all.
Yet sometimes, this kind of financing can be tricky and emotional. It would be ideal to share your growth plans with your family and friends to avoid this scenario. That way, they will see how dedicated you are to what you’re doing.
Also, consider seeking legal advice to help you and your loved ones set up an arrangement that works well for everyone. The last thing you’ll need is fighting them over money.
Angel investors are individuals that help companies (usually startups). They provide capital in exchange for convertible debt, and the idea here is to turn that debt into equity later on. Angel investors may also ask for ownership equity to have a residual claim on the ownership of the business. They can invest for up to $2 million, but in most cases, they invest $50k to $300k.
Crowdfunding is another common way of getting a defined amount of money for a particular cause in exchange for rewards. It has various categories, but it mostly falls under donation, debt, and equity.
But keep in mind that crowdfunding sites may differ and have different requirements. So make sure to study your options thoroughly and read the rules before raising a fund on one platform.
No matter how you plan to source your funds, it would be wiser to seek professional advice to ensure you get the best output. While getting funds from your family and friends may be the easiest, it’s often the most emotional. Weigh the pros and cons of getting a loan, crowdsourcing, and the others to avoid complications in the future.