Your business is soaring to new heights. Sales are up and customer orders have increased weekly. This moment is everything you’ve worked toward over the past few years. You have plans to introduce a new product line and expand to a larger location. There’s just one hurdle to overcome — financing.
Unfortunately, the company’s bank balance isn’t enough to support an expansion. You need additional funds to buy inventory and hire new employees. The solution you’re looking for just might be a business expansion loan.
What Is a Business Expansion Loan & How Does It Support Growth?
Business expansion loans help existing companies scale their operations. They can pay for items that support growth, such as opening a new location or investing in new product lines. These types of loans may offer more flexible repayment terms uniquely designed for businesses that need time to earn a return on their expansion efforts.
According to the U.S. Chamber of Commerce, most small businesses with more than five employees focused on expansion finance growth with a combination of loans and credit cards. By considering a business expansion loan, you’re following a tried and true financial plan.
The Business Expansion Loan Process: What To Expect
Everything begins when you recognize you need help financing your business’s growth. From that point, you can shop for financing opportunities and compare options.
Financial institutions set their own processes for evaluating loan applications. Most will check your personal or business credit score and history. Some may ask for the organization’s financial documents and recent tax returns. Lenders can also inquire about how you plan to use the funding.
If all goes well, the lender will approve the application to finance your company’s expansion. You’ll repay the loan based on the loan agreement.
Why Use a Business Expansion Loan: Key Benefits
One major benefit of a business expansion loan is fast access to funds. Instead of waiting to save up for your growth goals, you receive the capital immediately. This allows you to invest in essential resources—whether it’s equipment, inventory, or other key assets—right away.
Some organizations bring on outside investors to get access to capital. However, doing so may dilute your ownership in the company. Depending on the investment terms, you may lose some control over business decisions or access to its financial returns. With a loan, you don’t give up any of that.
Types of Business Expansion Loans
Business owners have several options for obtaining business financing, each with benefits and drawbacks.
SBA Loans
Backed by the U.S. Small Business Administration (SBA), SBA loans are a top pick among growing businesses looking to expand. They’re tailored to companies with a few years of operating history, though startups may qualify if they meet certain criteria.
SBA loans offer low interest rates, lengthy repayment periods, and sizable borrowing amounts. However, they can be challenging to qualify for without strong credit.
Term Loans
A term loan provides funding for most business purposes, including expansion activities. They’re available through most banks and credit unions. Repayment terms and interest rates may vary by lender and a borrower’s qualifications.
Approved applicants receive the funds from a term loan upfront and pay it back according to the financing agreement.
Owners may find term business loans easier to qualify for than SBA loans. Term loans also offer a much faster turnaround time and have fewer lending restrictions.
Business Lines of Credit
A business line of credit provides owners with access to a set amount of funds, but instead of withdrawing the full amount at once, they can use it as needed. This flexibility is especially useful for businesses expanding gradually, as they only pay interest on the amount they borrow, not the entire credit limit.
Traditional financial institutions and online lenders offer business lines of credit. Borrowing terms usually depend on the lender’s policies and the borrower’s credit profile.
Alternative Financing Options
Several alternative financing tools may help fund business expansion. A few include:
- Merchant Cash Advance: Provides short-term funding based on the organization’s future receivables. The financing company retains a percentage of sales until the business repays the debt.
- Invoice Factoring: This involves selling unpaid business invoices to a factoring company that buys them upfront for a percentage of their worth.
- Crowdfunding: Raises money from numerous people through a crowdfunding platform. Your organization may provide some incentive for donating funds, such as access to a new product.
The alternative finance industry is fast-changing. Newer lenders are introducing fresh business models to tailor loans to a company’s needs. For instance, in an alternative financing case involving a solar business, altbanq customized its loan terms using the borrower’s financial history and cash flows.
How To Qualify for a Business Expansion Loan: Main Requirements
Every financial institution has its own requirements for business expansion loans. At a minimum, applicants should expect to complete a general application providing details about their business operations and personal borrower information. Consider having the following available to support your loan request:
- Federal and state tax returns
- Financial statements, including balance sheet, income statement, and statement of cash flows
- Business growth strategy outline
- Legal documents, such as a business license and articles of incorporation
Review the lender’s criteria for loan qualification. Most financial institutions provide a general overview of what it takes to secure approval. If you can’t find any information through the lender’s website, it’s worth speaking directly to a representative. That way, you get a clearer idea of what to expect.
Smart Strategies To Manage and Maximize Your Loan
Taking out a business loan is a big decision. It can expedite expansion, but it is a debt that requires repayment. Keep these tips in mind as you search for funding.
1. Define Your Purpose
How will the loan support your growth plans? What are your business goals? Consider listing each potential cost and how it will support your company’s growth. A list of what you plan to buy can help determine your desired borrowing amount. It may allow you to avoid unnecessary purchases once you get funding.
2. Do Your Research
Many financial institutions are eager to lend money to growing businesses, but not all are a great fit for your company. Look at the various loan options available and shop around for different alternatives.
Consider the full package — the loan amount, repayment terms, and the lender’s customer service. Think of them like a business partner. While they won’t be part of your management team, you may work with them for some time. You want a lender you feel comfortable with.
It’s also worth reading previous customer reviews. Sites like Trustpilot allow clients to leave feedback about their experience with a lender. Combing through the reviews gives you clearer insight about what to expect. altbanq’s phenomenal 4.8/5 stars based on more than 200 reviews, for example, positions us as a trustworthy, reliable option for all your financing needs.
3. Factor Loan Repayments Into Your Budget
A loan comes with repayment obligations. Put together a budget that includes loan payments to see how it affects your cash flow. Will you have enough money to make payments, or will it put extra strain on your resources?
If repayments are a serious obstacle, consider waiting until you’re financially stable.
altbanq: Fast & Transparent Financing for Business Growth
altbanq provides financing solutions designed for companies looking for growth opportunities. We offer same-day funding and a straightforward application process — no tax return or business plan is required. Our loans range from $100,000 to $10 million, giving you the funds you need to fuel your business. Start your altbanq application today!