A business loan is an effective financing tool that allows most entrepreneurs to leverage their resources to help start a business. However, after a company is already established a business might need to consider additional outside funding. Businesses often require extra capital when it becomes necessary to expand to larger offices, increase the number of retail outlets, or increase storage capacity. Starting a business as an entrepreneur in a competitive market is an exciting and difficult venture.
Keeping that business alive through expansion is an even more difficult proposition. Careful consideration of current and future potential cash flows should be analyzed, so not to over leverage the core reason behind obtaining a business loan is essential. And therefore introducing new capital into the equation requires some serious attention to both current budgeting and future income and expenditures.
Many times it’s common for businesses to require outside cash to expand their operations and profit potential. One of the classic examples is a business that started in someone’s garage and grew to the point where expansion was impossible without a major change of venue. In such cases, the company might lack true equity because of its small size and verifiable office space, so a traditional business loan might be difficult to obtain. Commercial loans may require equity that a small business in someone’s garage wouldn’t normally possess. In such cases, unsecured loans, a co-signer, or an extraordinary history of earnings would provide strong support on the loan application.
When deciding whether the time is right to expand and apply for private lending or the different types of SBA loans, serious financial analysis is necessary. In addition, determining whether the business is strong enough to expand and has all of its vital pieces intact can play an important part in the success and implementation of this influx of capital.
For example, an increase in new orders and a strong profit margin might appear to be the work of a strong company, but are all the support systems where they need to be to guarantee the expansion plan’s success? Is the company prepared to increase administrative staff and spend more on overhead after securing the business loan funds? Estimating the business’s expenses after expansion is an important step to ensure the right loan amount is chosen and that the company can expand in a fiscally savvy manner.
It’s also important to figure out whether expansion into a new space is warranted or whether looking into small loans for less costly growth might be advisable. Perhaps a fledgling company might benefit from smaller, strategic spending rather than immediate expansion into a new space.
For example, a company without a solid web presence could invest business loan resources in a dedicated server and information technology professional to handle the company’s network. A new business might also consider enhancing a marketing program or purchasing additional materials to accommodate an increase in sales or an expected holiday rush.
Additionally, it’s important for businesses to consider that there isn’t just a single type of business loan or that loans of all types may be used for an incredibly wide variety of improvements, expansions, and development efforts. For example, government loans like the ones through the Small Business Administration come in a variety of types. Banks may offer general SBA loans, available under the 7(a) Loan Program, or a company might look at the CDC/504 loan if the time has come to purchase major equipment or conduct real estate transactions for expansion and construction.
The lesson any entrepreneur should take from an investigation of loan types is that the process of obtaining new funding isn’t difficult. However, the planning of what type of funding to obtain, as well as the way that funding will be used, will impact the future health of the business. Making the decision to expand requires good timing and smart budgeting. And by proper planning, obtaining a business loan may provide the funding necessary to construct new offices, add personnel, and reach new customers.