The target of every company is to grow. The process of expansion is financially engaging and may require you to take up loans. With loans, expansion can be done all year round without your sales and profit being affected, unlike when you dip your hands into the capital of your company to finance your expansion.
Expansion comes with increased financial need
The increase in financial needs of an expansion will come from salaries of newly hired staff as well as the need to increase the inventory, receivables and purchase new assets. Cash need of any business is never static as it follows a sinusoidal pattern – there are times when a firm will require more money and times when only a little will be required.
Different businesses will require different type of funding
There are different types of funding options and packages provided either by banks or alternative funding sources. Picking the wrong funding option may harm your business rather than helping you to achieve your goal. There are some issues to take note of when taking up a loan and they are as follows;
1. The interest rate
Some business owners make the mistake of taking up loan from any source without first looking at the interest rate. If the interest of a loan is too high, it may eat up your profit and extend the time of your repayment. Automatically, your credit score will be affected likewise your chances of obtaining future loans.
2. The Payback time
If you are considering taking up loan for expansion purposes, then you should look for long term loans. Short term loans will only help you start the expansion process but you may not see it to completions.
3. The maximum amount you can get
Before carrying out an expansion work, you must have taken your time to evaluate the project and how much money and time it would take. It is better to take loan in excess of the amount you need than to run into shortage. The truth is that if you do not complete the expansion work, you may not be able to get the increase in profit that will facilitate your repayment.
Identify the right loan for your business
Every loan has different requirement to secure them. Also, your business may qualify for only a few types of loans. Identify the loans that your firm is qualified to take; then sieve them further by looking at their requirements and terms – always read the terms of agreement properly before accepting any loan.
Be certain that your firm can manage money properly before taking up loan
When you take up loan without making preplans on how the money will be spent, there is the tendency that the money will be misused and the aim for which the loan is taken remains unfulfilled. When this happens, you will end up running into a situation where all your profit will be channeled into repayment of debt or you risk losing your firm or whatever you used as collateral.
Various options can be chosen for funding expansion
The list of funding options from which you can choose from to finance the expansion of your business includes A/R financing, Commercial business credit lines, Equipment financing, Sale-leaseback, Inventory loans, Royalty financing, Unsecured cash flow loans, Asset-based bridge loans/ asset revolving credit lines.
You need to understand the loans
Understanding the loans and properly analyzing your business need will help you to determine which loan to take. A growing company may need a combination of funding sources.
- Every startup business will desire to grow and expand after a period of time.
- Loans can make expansion possible without sales and profit being affected.
- Salaries of the extra hired hands usually push up financial need.
- The right funding option will differ from one business to the other.
- High-interest rates make repayment difficult.
- Long term loans are better for extension purposes.
- Taking insufficient loan will harm your business.
- A financial adviser will help you identify the best loan for your business.
- Only take loans when you can manage it.
- Your company many need to take more than one type of loan.
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