So as to expand your business, it is important to have sufficient cash holdings that can help in growth activities. But sometimes your cash may be tied elsewhere and you may lack the capital you require for the growth & expansion of your firm. During such times, getting a business loan is your most viable option.
Expanding a business entails incurring a number of costs. Expansion calls for hiring of extra staff and professionals, which may be expensive. In addition, you may need to rent new offices or even lease or purchase new quarters. Furthermore, if you are intending to expand your firm through mergers or acquisitions, the cost implications may be prohibitive. All such costs can easily be paid for through taking a business loan.
A firm can use expansion finance to enhance its productive capabilities so as to facilitate growth. Here are tips that can assist you if you are planning for expansion:
1. Determine if expansion is really what you need
It is absolutely essential to identify if your firm actually requires external sources to finance expansion. In case the business performs poorly, the debt that you have to repay is massive. Therefore, analyze your choices depending on the needs and wants of clients in the new site, the regulatory factors and so on. It is critical to objectively assess the advantages and disadvantages of taking a business loan.
2. Calculate the amount you need to borrow
After you have made the decision that you need to take a loan, determine the amount that you need to borrow. This is likely to be easy since you have already undergone through a similar phase when you were establishing your business. Remember to take into account all the relevant costs including hiring of staff, inventory procurement, leasing of commercial premises and opening new branches among others.
3. Choose the best financial source
You will be spoilt for choice when it comes to the financial options that are available for business expansion. Many lending institutions and banks offer expansion loans at affordable rates of interest. Moreover, you need to ascertain the type of loan you want to borrow. You can choose between unsecured and secured loans, overdraft, line of credit, interim loans and so on.
4. Verify eligibility and documentation
Many lenders check the creditworthiness of the promoters. Therefore, make sure that your credit rating is excellent. This an opportune time for you to clean your financial data for example tax filings, balance sheets and revenue sheets. You will be required to submit these documents during the loan application process. Additionally, make sure that you fulfill the eligibility criteria of the institution that you are borrowing from. Each lender uses different criteria and you therefore need to be equipped with the right information before you approach a lender.
In conclusion, even though expansion can provide better opportunities for businesses, it is a complicated and dynamic process. One needs to invest in a variety of areas such as land, plant and machinery and recruitment and so on. Getting the finance needed to assist in such activities helps to ensure a smooth expansion process for a business.