At one point in your entrepreneurship journey, you’ll need to obtain capital to acquire more business assets, expand to new markets, or pursue new product lines. That’s where expansion and growth capital comes in.
Within many financing options out there, it’s possible to find trouble deciding the safest ways to finance your business expansion. Also, the need to get cash quickly can easily land you on unscrupulous lenders and online scams that hurt your business growth.
So how can you grow your business safely without sinking into unmanageable debt or falling victim to predatory lenders?
Bootstrapping, bank loans, and small business loans from online lenders like Camino Financial are some of the safest ways to finance business growth. This article walks you through safe ways to expand your business. Let’s jump right in!
5 safe ways to finance business expansion
If you want to grow your business without surrendering ownership to venture capitalists and angel investors, bootstrapping may be a great option. It means using your own funds to pivot business operations.
You keep your business growing with personal savings, personal loans, credit lines, and money from friends and family. Experts also advise reinvesting 30% of the profit into buying business assets or funding other business operations. Plowing back business profits can help you float your startup without going into too much debt.
The downside to bootstrapping is that it may result in missed business opportunities, slow growth, and mixing personal finances with business revenues.
Avoid over borrowing
Having an ambitious expansion plan is great. But too much growth within a short period can sink your enterprise. The death trap comes in the form of debt.
Some businesses overborrow to speedily venture into new markets and set new locations in an attempt to overthrow the competition. Before they know it, they begin to experience cash flow gaps and can’t cover payroll, pay rent, pay suppliers or purchase inventory on time. The worst happens when your debt-to-income ratio begins to raise eyebrows from lenders and can’t obtain any further lending.
To avoid the death knells, borrow only what you can pay comfortably without suffocating business cash flow. A good rule of thumb is to keep your monthly payments below 80% of your net monthly revenue.
Avoid predatory lenders
The desperation to get growth capital quickly can land you on the wrong lenders. Predatory lenders promise to offer cash quickly to business owners with poor credit without the need for collateral. They usually don’t come clean about their APRs. Mostly, their business operations lack proper government regulations.
For instance, Merchants Cash Advances (MCAs) are some of the easiest to get in town. But interest rates can go up to 400%. You may end up hurting the growth you seek if you borrow from the wrong lenders.
Get an SBA or bank loan
The good thing with bank or SBA loans is that they come with lower interest rates than you can find in most places. If you qualify, you’ll be looking at one of the best ways to finance business expansion with reduced borrowing costs.
The catch is, banks require excellent business credit, long trading history, substantial business revenue, and collateral to secure the loan. Bureaucratic, paper-laden application processes and lengthy approval periods are also a hurdle.
Online lenders are the best bet for small business owners. These are fintech companies that use technology to offer better, faster financial services businesses online. They have favorable lending terms, a simple application process, faster funding, and fewer requirements.
It’s not uncommon for business owners to secure small business loans with online lenders after being turned away by banks. For instance, Camino Financial offers small business loans to business owners with fair credit or better.
Tips to find good online lenders
- Registration: Check with your state’s Attorney general office for registered lenders and only work with lenders with a good rating on the Better Business Bureau website.
- Transparency: Avoid lenders who display only the APRs but don’t disclose other fees. Genuine lenders offer loan calculators and a simple pre-approval process
- Research: Research the lender to ensure they have a genuine website, social media accounts, and functional customer service.
- Comparison-shop lenders: Look for lenders with favorable lending terms and fewer fees. Too many fees can significantly increase the cost of borrowing.
- Deceptive offers: Be wary of teaser rates and too-good-to-be-true loan offers. Work with lenders who offer reasonable, transparent terms. Shun lenders who ask you to cover fees out of pocket.