Here’s What You Need to Know About Expansion Financing

If you’re a new business owner unfamiliar with your options for expansion financing, it’s a smart idea to get acquainted with them now. Proactively educating yourself on this subject will help you avoid scrambling and trying to figure out how expansion financing benefits you in the future when you need it.

Launching an upstart requires as much capital as it does tact and dedication. And while starting a business is one thing, profitably maintaining it over the long term is an even trickier task. It’s no secret that roughly half of all small business shutter within five years, and to offset this risk, business owners must get a handle on their growth strategies sooner rather than later.

The good news is that 50 percent of the businesses that haven’t failed fail are succeeding. The reason why these companies continue to thrive is that they understand how to leverage business financing to drive their long-term strategic growth initiatives.

Running a modern small business demands more than tight budgeting and an effective marketing strategy. These fundamental elements are undeniably important, but they are hardly useful if your organization hasn’t tactically positioned itself to grow alongside market demands.

Why should you be thinking about expansion now?

If, for example, you operate a physical warehouse site, eventually, you’ll need more space. Businesses in the healthcare and manufacturing sectors always need new equipment and the latest software tools.

Growth is hardly a bonus feature of doing business. It’s a necessity. For those organizations that haven’t sufficiently prepared themselves to expand their operations, workforce, and existing customer base, the odds of these companies developing a sustainable long-term platform are low.

The sooner you start thinking about expansion financing the better. With the rising costs of labor, materials, and real estate, the longer you put off your strategic growth initiative, the more it will cost you to successfully execute it.

Organizational growth is known for boosting company morale while assuring your staff that you haven’t checked out of the company and that your organization remains on profitable trajectory. Stagnancy in business is never a good sign and is usually a reliable indicator of bleak times ahead.

Of course, expanding your operations is never cheap. Most businesses need access to outside financing. The trouble with this is that most conventional lenders have been reticent to lend to smaller companies since the 2008 financial crisis.

By many indications, the global economy may be headed for a similar downturn, which means you can expect the credit market to tighten even further. That’s why it’s advisable to get started on your expansion plans now as opposed to waiting.

Expansion financing and alternative lenders

Fortunately, alternative business lenders like New Bridge Merchant Capital have started filling in the business financing void that was once occupied by traditional lending institutions before 2008.

Alternative lenders are far more likely to approve business expansion loans in the current economic climate. These lenders can get you the funds you need at a pace much faster than if you had a pursued more conventional financing path.

What is expansion financing, and how does it work?

Put simply, expansion financing capital helps growing upstarts increase their balance sheets and add the valuable company assets required to keep their operations on a positive growth path.

Business expansion can entail any number of objectives. Most commonly, expansion involves the introduction of new assets that bolster areas such as research and development, marketing, and operational productivity.

Expansion refers to any activity that leads to securing a larger customer base, including substantial transactions that involve mergers and acquisitions. So, how do businesses finance their expansion plans? There are several ways to go about it, from crowdsourcing to private equity loans, but the most common methods are equity and debt financing.

What is equity financing? This method of funding requires businesses to issue stock shares in exchange for the infusion of extra capital. The primary downside to equity financing is that it often involves business owners relinquishing some aspects of control over their operations. In exchange for this, the company owner is released from any obligations to repay the debt.

Debt financing, on the other hand, applies more traditional lending concepts in which funds are dispersed by a bank or non-bank with the expectation that the borrower repays the balance over a fixed term with interest. Under this model, business owners aren’t required to give up management control over their companies, but they may need to offer up business collateral to secure the proposed expansion loan.

Regardless of which path you take, it’s important to be confident that the expansion will lead to profits before financing the project. You should also make sure that your business is on firm ground pursuing any expensive growth strategy.

Lastly, conducting sufficient research into your financing options is crucial. You always want to find the best loan for your business and confirm that you’re not missing out on better financing opportunities.

Choosing an expansion finance lender

The first thing to look for in an alternative financing offer is lender transparency. If you’re working with a creditor that is upfront about all its fees and repayment terms from the outset, this is a pretty good indicator that you’re dealing with an honest financier that is well-vested in you having a positive borrower experience.

While business loans for expansion are often hard to come by, this is hardly a good reason to not hold the prospective lender to high service standards. Excellent communication, attention to detail, and a supportive attitude are all qualities you should be seeking in a business banking partner.

Getting started with your next business expansion loan

Understanding how to finance business expansion isn’t overly complicated, as long as you understand the basics and don’t put your growth plans off until it’s too late. The last problem you want to encounter is a spike in customer demand that you’re unprepared to meet.

Expansion can be an expensive and complicated undertaking. Working with the right alternative lender can make all the difference in guaranteeing a successful outcome.

New Bridge Merchant Capital’s senior business finance professionals have decades of experience helping small businesses like yours execute their strategic growth initiatives.

For more on how our business lending experts can help you expand your company’s footprint and boost your annual revenues, apply now on the New Bridge Merchant Capital website or call us at 844-228-0593.