Expanding your business means more customers, higher profits, and better brand awareness. However, before you can begin you will need enough money to cover the costs of expansion. The good news is you can find a whole range of effective ways to raise money for business expansions in the post below. Read on to find out what they are.
A bank loan
Highstreet and online banks offer business loans that can be used to expand your company. The key benefit of this type of funding for your expansion is that as long as you keep up with your loan repayments you get to keep 100% control of your company. Banks can also offer a good degree of flexibility on repayment terms which means you can shop around for the best deals on interest rates.
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The downsides of taking out a bank loan to fund your business expansion are that you will end up jumping through hoops to show that you are worthy of the bank’s investment. This means a great business plan, forecasts, and a clear plan for how you will spend the money that the bank lends you. Also, bank loans tend to have a fairly modest cutoff point so if you need anything more than $60,000 – $70,000, you will probably have to look elsewhere.
The government has a vested interest in promoting the success of business and commerce. That is why they offer a range of grants that can be used to help your business expand. One of the best things about a government grant is that it’s free money, you don’t have to pay it back. Although you will need to make sure you stay within the regulations and guidelines that were initially set out for the grant, otherwise you could find yourself in hot water.
You’ll also have to go through the process of finding a grant that you are eligible for and applying for it. The criteria can be pretty strict too so expect to put plenty of effort and time into customizing each pitch you make.
While they don’t have wings, angel investors can swoop down and appear to be the answer to all your business expansion funding problems. Angel investors are people that have high net worth and will offer to fund businesses. The catch is that for the funding they provide which can be substantial and in the millions, they will require shares in your business.
The bad thing about giving away shares in your business is that you no longer retain full control. Indeed, if one person or organization buys up enough to have a controlling share of your business they can direct the way that your company acts, even if it’s not what you the founder wants. However, there are good things about angel investing including the fact that you won’t have to pay back any of the money you get. This means you can move forward quickly with your expansion without anything holding you back.
Venture capital investment comes from firms specially set up to offer money to businesses that need it. Venture capitalists will want a significant chunk of your business for the funding they provide. However, if you are looking to borrow high-value amounts of a million and above, they are usually the best bet.
Of course, you’ll need to be able to convince a venture capitalist that you will get a good return on their investment, so that means an amazing business plan, a great pitch deck, and the utter conviction that you will succeed no matter what.
Selling stock in your small business
A viable alternative to venture capital and angel investors for small businesses is to sell stock in your company. This can work particularly well because small businesses can complete a private placement offering and so skip a great deal of the work, time, and hassle associated with registering with the Securities & Exchange Commission (SEC).
To sell stock privately in your small business you will need a PPM or Private Placement Memorandum which details the potential risks investors could face. It’s best to get professional Syndication Attorneys to draw this up for you. The reason is that it is a very important document, and so much covers every angle or risk. Otherwise, you may not be protected if your investors lose money and decide to ask for compensation.
Peer-to-peer (P2P) finance is a system that matches up businesses looking for funding with investors. It is a mutually beneficial situation for all individuals involved because the investors get a better return rate than a savings account, and the business gets the money they need to expand.
One of the critical advantages of choosing peer-to-peer lending over any other method of raising money for your business expansion is that you can apply quickly and easily online. It’s also possible to borrow a more generous amount than with a bank, with some peer-to-peer lenders offering a million dollars or more to the right applicants.
Another benefit of peer-to-peer loans is that just like with a bank the interest rate is agreed upon upfront. Although you may find that the rate is not as favorable as it is with large financial institutions. Also, just like a bank loan if you don’t keep up your repayments your business will be at risk.
Another way you can fund a business expansion is with crowdfunding. This is a kind of micro-investment strategy that draws small amounts from a large number of people to be effective. It’s not a strategy that is suitable for every business, because the key to its success is to be able to convince enough people to invest their own money in what you are doing.
Indeed, this is why most businesses that have had success with crowdfunding have done so with a tangible product they can promote on social media, which allows them to entice people to invest. In essence, the people that investors are buying the product, as well as some perks, and agreeing to wait until it’s manufactured, rather than expecting right away. They are ‘investing’ in the process of getting the product they want to be made, and so without a highly desirable product, this type of investing will be difficult to get off the ground.
3 thoughts on “Smart Ways To Raise Money To Expand Your Business”
As a small business owner, these are all very good options to think about should we need to raise money in the future. Right now we’re just taking it one week at a time.
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