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Funding options for expanding a business

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Jan 4, 2023

Fact Checked By:
David Nicholson - Finance Editor

What are your business finance options for funding your expansion?

There are many funding options for business owners and companies looking to expand their business, including small business loans, overdrafts, and commercial mortgages. Research all options to find the best growth financing for your company.

You have many funding options if you have decided to invest in your business’ growth. To help you navigate this exciting, but difficult time, we’ll be discussing the various financing options on the financial markets in greater detail. Small business owners are also entitled to finance.

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What are the difference in expanding business loans?

There will be differences in approval requirements, rates and conditions, as well as payback terms, having to pay interest and other criteria. It is impossible to know the differences between funding types without understanding the benefits of securing financing.

It is essential to prepare a strategic plan before you apply for borrowing money. The plan will serve two purposes: it will provide a guideline for getting your business to where you want it to be with future growth and also help you with financing requests.

Private Investors and lending agencies will appreciate a well-organized strategy for growing your company. Once you have a strategy for growth, lenders and investors will be able to help you with a variety of financing options and raise capital.

Which is the best place to start? These are the most popular ways to finance a business by borrowing money.

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Plan your business expansion and the funding required

If your business is profitable and scalable, and you are motivated to do so, growth and expansion can be a natural progression for many small business owners. Finding funding can be a significant hurdle in the business’s life cycle. There is no one-size-fits-all solution for finding financing to finance business expansion.

Although funding may seem overwhelming at first, there are many funding options for small business owners. There is no one-size-fits-all solution for funding business expansion. It’s important to do your research and understand the options available.

Consider reviewing your business plan to include your growth strategy before you apply for a loan. This will help you to plan your expansion strategy and growth goals.

It’s not an easy task. But, if you do it early enough, your funding needs will be clearer. Then you can make decisions about the best path forward for your company.

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What expansion funding options are available?

It is a smart decision to seek the advice of a financial professional when considering growth financing.

An expansion can cause cash flow problems. A financial expert can help you determine if your company can afford to take out debt. However, there are many things you can do to help yourself.

Small business loans

Many business owners will first visit their bank to seek funding. You might have received a fantastic business loan from your bank years ago. If so, you can visit them again with your updated business plan to ask for additional cash injections to help your company reach its full potential.

If your business is viable and your financials can be proven, banks are more likely to finance your expansion. They will need to see your business plan to understand how you intend to repay the small business loan.

If you can provide security for the loan amount, you might get a better deal with a bank via a secured business loan product. Enterprise Finance Guarantee is a government program that allows small businesses to get loans from a variety of bank lenders.

Bank loans for businesses are typically repaid over pre-agreed terms.

Bank overdrafts

Although an overdraft from your bank account can help you finance growth, the funds available may be limited. This is a good option if you only need a cash flow buffer. However, a secured loan might be a better choice if you require large amounts of cash to finance your expansion.

Invoice financing

Invoice financing is available in many forms in the UK. However, all require businesses to “sell” their unpaid invoices and make them available to a lender. The UK invoice finance lender will usually take a percentage cut or charge a fee.

Invoice financing can be an effective funding tool to help small businesses through times of low cash flow. It comes with a cost.

The money you get from invoice financing might not be enough to fund more ambitious, long-term expansion plans. This is similar to invoice discounting, which may also be a viable option for your business.

Asset financing

Asset financing is a great option for expanding your business. You can spread the cost for large purchases using the hire purchase or leasing model of asset financing packages. This will ensure that your cash flow is not affected by the purchase.

Asset financing can finance a significant purchase and free up cash for growth. But, leasing assets will end up costing you more long-term than purchasing them.

Failure to pay the rent will result in the asset being forfeited. It’s all about balancing your options, as with all business finance.

Commercial mortgages

A commercial loan is available to assist you in expanding your business or buying new premises.

A secured loan, such as a commercial mortgage, will typically have lower interest rates than an unsecured business loan. This is because it allows you to finance expansion. You can also repay the money over a longer time period.

However, this means you will need to deposit a large amount of money, which can tie up cash you wouldn’t otherwise have. Failure to make your payments on time could result in repossession.

Angel investment

If you have a high-growth potential business and can show this, you might be able to get funding from wealthy individuals or groups who are willing to support smaller businesses while also making a handsome return.

Many online angel investor networks can match UK companies with potential investors if you don’t know where to look.

Investing from family and friends

Businesses don’t need to look far to fund their expansion. Friends and family with funds to invest might be able to assist. Your loved ones might be eager to invest in the future of your business, but they should only invest in what they can afford.

Get a personal loan

Getting a personal loan for your expansion requirements may be a suitable option if you are a sole director. This may be much easier to get than having to do it though your business; however, it’s important to remember that you personally will be liable to repay the debt, not the company.

Read our guide on personal loans vs business loans and find out which may be right for you

How to prepare for your loan application

It is important that you have a healthy financial situation and that you keep impeccable records when applying for funding. Lenders want to know how you plan to spend your money and how they will return their investment.

Before you apply for a loan for your business, here are some key questions

  • What amount do you need to borrow?
  • What are you using the money for?
  • Are you able to afford repayments?
  • Are you able to provide security for the financing?
  • How can your business manage the risk?
  • Are you able to afford to take on more debt?
  • When you factor in your repayments, will you still have enough cash?

Above all, do your research. Businesses have many options when it comes to investing in growth. However, you must make the right decision. Many online tools will help you evaluate each option objectively to maximise your business’ potential.

You don’t have to look outside if your business requires money. Sometimes, it is sufficient to improve your internal operations to raise funds for equipment purchases, staff hires, and other business needs.

If done right, cash flow management strategies will free up capital to invest in other areas of the business without compromising day-to-day operations. There are some cash flow finance loans available if external funding is required. See below some of the common ways to increase cash flow in a business:

  • Invoicing customers quickly
  • Modifications to pricing and payment terms
  • Creating collections
  • High-interest credit cards and cash-back credit cards
  • Avoiding equipment purchases
  • Outsourcing business activities
  • Negotiating with vendors
  • Financial records that are accurate and timely
  • Improve forecasting

A financial expert can help you determine the best way to manage your cash flow while maintaining the company’s overall health.

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