Any small business with plans to grow must have reliable financing options in place. Funding business expansion is rarely cheap, and it costs quite a bit in some industries. A company’s ability to grow and expand often rests in its ability to obtain financing.
Simply put, small businesses have to be able to readily obtain financing in order to grow. It is part of the game. Yet there are multiple ways to fund business expansion. Below are five options. Note that it isn’t unusual for small businesses to utilize all five over many years of growth.
1. Bank Financing
Whenever people think about borrowing money, their thoughts tend to drift toward traditional banks. No surprises there. Banks exist for that very reason. They take customer deposits and loan them out to generate healthy returns. If it were not for the ability to lend, banks would have no business being in business.
Traditional bank financing is not necessarily the ideal option for every expansion project. Bank lending criteria is pretty strict. Furthermore, the amount of time it takes banks to close business loans can be lengthy. Finally, a lot of businesses simply do not qualify for traditional financing even though they have the financial strength to support borrowing.
2. Government-Backed Loans
Small business loans backed by the U.S. government are another option. From time to time, states offer small business loans as well. The loans are still funded and administered by commercial banks, but they are easier to get because they are backed by the good faith and credit of the government.
3. Hard Money Loans
Next up are hard money loans made by licensed companies like Salt Lake City’s Actium Partners. These are asset-based loans, meaning a small business would have to put up some form of hard asset as backing. The asset could be real estate, existing business equipment, or just about anything else the lender is willing to accept.
Note that hard money loans can be structured as bridge loans. In a bridge loan scenario, the business would accept a loan from the hard money lender in anticipation of future income that would go to paying off the loan. Bridge loans are always short-term instruments.
4. Private Lending
Private lending is similar to hard money lending with one notable exception: private lenders do not tend to be licensed, bonded companies. They are simply individuals willing to loan money with interest. Private lenders generally don’t market themselves, either. You have to go looking for them.
The big upside to private lending is flexibility. Private lenders can do with their money as they see fit. The downside is that borrowers are not working with a licensed, bonded company required to follow state and federal regulations.
5. Old-Fashioned Bootstrapping
What modern business refers to as ‘bootstrapping’ is actually the age-old practice of being your own funding source. A small company looking to bootstrap expansion could tap into savings and existing credit accounts. It could raise immediate cash by selling future receivables. The company could sell a hard asset of which it no longer has need.
Bootstrapping is more a tool for startups than established businesses. Still, bootstrapping is one way to either completely fund business expansion or make up for the difference between what a company needs and what a lender is willing to offer.
The reality is that business growth and expansion costs money. You have to spend it to make it, right? Any company that wants to grow has to be able to fund growth in the short term. Fortunately, there are plenty of options to choose from.