If you’re looking to purchase new equipment or hire new employees, it can be hard to find the money needed to do so. While you may be able to secure financing from your bank, getting that kind of money usually takes some time and can be difficult if you don’t have many assets or collateral or if your credit score isn’t high enough. That’s where business expansion loans come in – they provide the funding you need fast and are relatively easy to get if you have a steady income and good credit. Here’s how to get one of these loans!
Is now the right time for your business to expand?
If you’ve taken the time to develop your company over the years, now is an ideal time to grow. For many entrepreneurs, this means taking out a business expansion loan. Before you do that, though, it’s important that you ask yourself some serious questions. Here are four things you need to think about before you take on new debt and increase your monthly expenses;
Are there current projects that I’m not able-bodied enough or don’t have the resources for?
Am I at risk of being overwhelmed with incoming orders if my business increases demand by too much?
Does my current inventory provide me with enough protection against increased overhead costs?
Would taking on more debt affect my ability to meet major obligations like funding retirement accounts or student loans?
If you answered no to any of these questions, it’s important that you spend some time thinking about them. If, however, your business expansion loan is justifiable, there are several steps you can take in order to make sure your application is successful.
The process and paperwork of applying for a Business Expansion Loan
Obtaining an expansion loan is not as difficult as it might seem. Of course, there are some qualifications for who will qualify for such a loan, but if you have a sound business plan and have your finances together, then the process should be very smooth. Once you have determined what kind of loan you will need, there are things that you need to do prior to applying for it.
First, document any outstanding debt and work out how much money that leaves you with over the course of six months. Do this before even setting foot in the bank.
Second, get all of your paperwork together; it’s important to show them everything you have going on financially. Documentation includes Your balance sheet
– A balance sheet is a snapshot of your financial situation at one point in time. It shows assets (what you own) on one side and liabilities (what you owe) on the other side. You’ll want to provide these documents when seeking funding from banks or investors so they can determine whether or not they’re interested in investing with you based on how much they think they’ll earn back.
The advantages of using Equity Financing
Equity financing can be defined as funding used for either the purchase of shares in a company or the equity needed by new investors. Equity financing can also be called venture capital and is usually obtained by selling shares in the company. Many times, companies will sell shares at an initial public offering (IPO) where the company can choose how much of its equity it will sell.
The sales price per share is based on factors such as market demand and anticipated earnings. Equity financing may also take place when two or more investors invest in the same company with their own money. All profits and losses are then divided proportionately among each investor depending on the size of their investment.
The advantage of using equity financing is that you do not have to repay your debt, meaning you do not have to pay interest. For example, if you borrow $100 from a bank with an interest rate of 5%, this means that after one year, you owe $105. On the other hand, if you were using equity financing, your return would only be calculated as profit loss if your business earns $5 profit per year ($10 total), then your return would be 10%.
Tips for securing a line of credit from your bank
Line of credit is becoming a popular form of loan because they allow individuals to borrow money as they need it and make monthly payments. If you want to expand your business with new equipment or renovations, then you might consider applying for an expansion line of credit. To make the process easier, we recommend having these three things ready
1) Proof that you have income that can cover repayments- This is required so that the bank knows there is enough revenue coming in from your business. Usually, this will involve providing them with your last three years’ worth of tax returns. In some cases, if you’re younger and starting out, the bank may ask for documents such as pay stubs instead.
2) Financial statements- This is a snapshot of your company’s finances from your accountant. You will need at least two years’ worth, but it can help to provide more so that they can get an idea of how long you’ve been operating and whether there are any trends.
Your statement should include information such as net income, expenses, and debt obligations. The goal here is to demonstrate that you have enough cash coming in every month and don’t have other debts eating into your profits (i.e., if you want $10k for equipment, don’t tell them that over half of it went toward paying off other loans).
3) A business plan– If you’re looking for more than $100k, then you’ll likely need to have a business plan. A good plan should give an overview of your company’s objectives and challenges while also providing some financial information. The last thing you want is for your banker to read a great business plan only to find out that your expectations aren’t realistic.
This is especially important if you’re applying for an expansion loan because it will make it easier for them to determine how much they can offer. Having all of these things ready can help simplify securing a line of credit from your bank and make it easier for them to assess whether or not they should lend you money.
Which Lenders are best at arranging Loans for New Businesses?
Loans for business expansion can come from many sources, including banks, community development financial institutions (CDFIs), government agencies, or other private sources. The type of lender will depend on the company’s needs and its funding sources. For example, many small business owners seek loans from CDFIs because these lenders tend to have lending criteria more tailored to small businesses.
There are also loans tailored specifically for startup companies looking for a first loan; these typically offer lower interest rates and longer repayment periods than conventional business loans do. And some organizations may be able to give you a personal loan with reasonable terms- even if you don’t have any collateral as long as they can see that your credit is good enough.