It’s scary to borrow money–suddenly having an obligation to a lender can feel like a huge restriction, especially if you started your business to be your own boss and feel a sense of ownership. But done smartly, financing doesn’t have to be onerous–it can be a vital tool for helping business growth and success. That, and it may be necessary for many business situations. If you’re a small business owner then you likely devoted a huge amount of resources to your company when you started it, and you’re probably not sitting on a pile of cash you can invest in your next business stage. If you wait too long to grow your business then you might miss out, as competitors move into the marketplace while you try to make a decision. Let’s take a look at when and how to finance growth:
How to know when to grow
It sounds obvious, but it bears acknowledging: the best time to grow your business is when it’s doing well in the first place. If you’re struggling to make profits or keep regular customers now, you should focus all extra time and resources on alleviating those concerns rather than spreading yourself even thinner. If your business is doing well, then you’ll want to look for signs that growth could be supported. Maybe your customers have expressed interest in supporting a larger operation. If your company is thriving but you’ve been feeling overcrowded or overworked, then that could indicate it’s time to expand–you have more business than you can fit in your current space and schedule!
A wider analysis of your industry and marketplace might also help you decide if you should expand. If you live in an area with lots of new houses getting built, for example, that’s a solid point for expanding your construction business. If nationally more and more people are buying reusable water bottles then it’s a great time to expand your water bottle store. But beware of basing your expansion on a trend. If you run a booming toy store, you might want to stop yourself from opening an all-fidget-spinner location: what might be a booming sales item one year might be old news the next, but you’re still stuck repaying the financing of your expansion. Instead, try to rely on steady, predictable market growth when deciding on expansion.
Growth analysis might also highlight areas of your existing business that could be cut back. If you discover you’re devoting a quarter of your store to an inventory type that barely sells, then you can free up the resources spent on that less useful product and apply them to something with real growth potential. If you do decide to grow, put equal or greater analytic powers into deciding how to grow. No one wants to realize the new store they opened is located in the wrong part of town, or that their new equipment doesn’t actually meet their needs.
If you’re looking to expand an existing healthy business, then you already have a huge leg-up over startups just entering the market. Many lending sources offering the most competitive interest rates will only seriously consider working with businesses with a proven track record. Bank loans to small business have unfortunately not returned to pre-2008 levels. This means you still face a disadvantage compared to larger companies able to promise banks fairly large and steady return on investment. If you decide to apply to a bank, be prepared to present a robust and carefully put-together application package. Have a solid financial analysis ready detailing what you need, how you’ll use it, and how your investment will consistently generate profit and allow you to make regular payments.
Online lenders may provide the ideal solution for healthy businesses investigating growth. Because they utilize online platforms to match borrowers with lenders, transactions are far lower-friction than they are with banks. This lower-friction platform means you can match up with a lender who meets your specific needs, and you don’t spend a ton of time applying to a bank only to get offered an ill-fitting loan. Currency’s online platform, for example, could be ideal if your growth involves a major equipment purchase. Our search platform automatically looks through over 100 qualified lenders to find the best match for your needs, instantly.
What about credit cards or credit lines?
Credit cards and credit lines are both good financing tools for short-term credit needs, but they’re not ideal for financing growth. Repaying a large debt with either tool can lead to high interest payments. In general, you should be putting large, predictable expenditures on a loan or a similar financial instrument. Reserve your credit card or line for credit-building day-to-day cash flow and emergency needs, and keep either or both as close to fully paid as possible.
Growing your business can be a scary decision, but it can be an exciting one too. With the right preparation and tools, you can build permanent, sustainable growth for your company.
In need of more growth strategy advice? Currency’s team of experts are always available to provide personalized assistance — contact us today!