Financing Business Expansion for Your Small Company

How you finance the expansion of your business is important. Borrowing and understanding the consequences of borrowing for your financing is extremely important. If you are going to borrow the money to finance the expansion of your business, you need to make sure that you are not going to get yourself into a cash crunch situation. This is where you are going to have a lot of money coming in from new business completed and invoiced but not have enough current cash flow. When you borrow you will be financing new equipment, locations, signage, or perhaps a new work truck on a credit line, lease or loan payments. The initial payments are going to be due before you get your increased income from the expansion in. This can be a major critical problem and we do not want this to happen to you.

When you finance your business location or expansion, you need to make sure that if you will be borrowing and will have to pay that money back with interest charged on the various loan programs. This is going to cut into your cash flow. You could also charge the equipment on a credit card, which is about the same rate as an equipment business lease. Maybe even a little less believe it or not.

The easiest way to get financing for expanding your business is to go down to your bank and get a loan. But you are not going to be able to get a loan if you have been hiding all the cash from your business, not making any deposits. That is something to think about. So many small entrepreneurs start out on the wrong foot hiding or skimming cash, then when they need to expand they have no proof of income or sales and cannot get qualified for a loan.

Now you may be in a position with your business where you can just pay outright for an additional units, equipment, locations or outlets, if this is the case hats off to you’re my friend you are truly in a good position. This is a great position to be in but remember that if you put the money out in cash, you no longer have use of that money for other business needs. But it is a nice position to be in to be able to pay up front as your business grows. Remember though, some business investment assets are easily financed while for the purchase of others it is often easier to pay cash or just write a check.

Pkay then you are all set and have determined that the business needs to expand to take advantage of increased sales opportunity in your market place. So, Where to Get Financing? When financing your business expansion, there are many important factors that can make your task a total nightmare (the loan from hell) or extremely easy and a relative piece of cake. The smartest way to finance your business isn’t the easiest. The easy way is to pay for it your self out of savings or use a credit card. Unfortunately if you take money out of savings that was there in case of emergency or for a down payment for your house or something equally important, this may put you in jeopardy later if you need that money.

The SBA would be a nice way to go but it takes a long time for them to approve a loan. If you own a home they want you to put it in the loan as collateral in case you don’t pay your loan back. By the time they give you the money your investment opportunity is often lost. That big account you got that would nearly pay for all the new equipment has to be started ASAP. If you finance through the SBA 7(A) program, they will not let the loan term extend beyond the term of your franchise, if you are a franchised outlet. You may also be required to pay that loan off before you get any others

In summary, when doing business with the SBA you will: Pay more as a down payment; Spend more time in the approval phase; Need more collateral; Face shorter repayment terms; Be very aggravated by the whole process.

Approval of Credit for simple business bank loan takes time. If you are trying to get credit from your bank or from an SBA loan or something like that, it takes time. Be prepared to wait anywhere from several days to several weeks for approval. You need to factor this in if you are thinking you want to have a new location or more equipment for your current operations. If you need to expand look at your bottom line, can you afford it? Will your cash flow be able to handle the new debt if you are delayed for any reason from local building regulations, an inopportune lawsuit, competitive changes in the market, downward sector rotation in your industry. Think long and hard about these issues and if you decide to go for it, check all your options, interest rates, pay back periods and do what is best in the short term and the long run.

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Financing Business Opportunities With Fewer Restrictions

Opportunities in business can be exciting but frustrating if you don’t have the cash required to take advantage of them. On one hand, this opportunity could be too hard to pass up because of the potential growth possibility, but, it can also mean accepting the often onerous terms of the lender to acquire the cash needed.

Owners can choose from small loans, factoring or a new twist on receivables financing. The least restrictive to the business owner is the receivable financing solution. It offers an online auction marketplace designed specifically as an outlet for small to mid-sized businesses to accelerate positive cash flow while maintaining complete control of the transaction.

This online receivables marketplace allows businesses to sell their commercial accounts receivable through auction. Financing opportunities in this manner is similar to factoring but the transaction is entirely different.

The auction platform gives greater control to the seller of the receivables. On the contrary, factoring allows the factor to set the terms, including advance amount and fee. In addition, the arrangement can often carry with it an all-asset lien, which requires that all of the invoices from a particular customer be included and that your customer be notified that your receivables have been sold.

Factoring can come at a high cost with many restrictions. With factoring, not only do you lose control of pricing, but by notifying your customers, you can potentially place the relationship with your customer at risk. Seller determine which invoices to sell, the minimum advance amount and the maximum discount fee they will pay.

Also, their customer is not notified, meaning the Seller retains the relationship. Once the accounts receivable are posted to auction and the auction goes live, buyers-a global network of accredited institutional investors-bid to purchase these invoices in real-time, ensuring a competitive cost of capital.

Loans can also be quite restrictive and time-consuming for small to mid-sized businesses-and that is if they can get approved. This loan process can often take weeks and months of gathering information, filling out applications, interviewing with the loan officer and then waiting for his answer just to find out if your company has been approved.

By the time the money is made available, the price of the specialty equipment or added resources you needed has gone up, the prospective employee has found another job or the larger office space has been snapped up by another business or worse, the competition.

Another limitation of financing business opportunities with a traditional loan is that the bank sets all of the terms- the rate, payment amount and penalty, and what collateral is required. Restrictive covenants are often part of the loan terms as well.

These clauses allow the bank to dictate the actions of the business in order to satisfy the loan requirements. It protects the lender by enforcing financial compliance of the business. If anything significant changes in the financial health from the time the loan is issued, the bank can call in the loan-worse force you in default which could lead to bankruptcy-because the covenant has been broken.

By using the online auction marketplace for trading receivables, the seller gains quick and flexible access to working capital without these restrictions and without taking on additional debt. Another attractive aspect of this alternative working capital solution is that the seller can potentially receive funds in as little as 24 hours.

So, for small and mid-sized company owners, this type of receivables financing means freedom. Instead of relying on and being beholden to other lending entities, you can now dictate the terms and unlock the cash held in accounts receivable quicker, with little risk and few restrictions.

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Being short-term loans that assist your immediate cash needs, personal loans can help finance business startup expenses. Typically personal loans are a single payout loan with a high rate of interest. The borrower usually returns the loan with interest in one go rather than paying monthly installment. In general, personal loans are not recommended due to their high interest rates. A borrower may find it difficult to repay the whole debt in a single shot, however, with business startup’s the case is indeed different! Let us see how different finance options can save the day for business startup’s.

Typical Business Start-up Expenses

Once you have decided to start a business you will most likely have a solid business plan that will detail your initial financial requirements. Typical business start-up expenses can be broadly divided into overheads and variable expenses. One thing that remains constant with almost every new business, is that you need some money to purchase inventory, lease a building, start an advertising program and work towards your first sale. Personal loans are extremely useful in financing those overhead expenses that usually occur at the beginning as a one-time cost. Variable expenses are those that continuously occur in the process of conducting a business and are generally tied to sales projections.

For instance, in case of a software business start-up, the administrative costs, licensing costs, initial infrastructure setup cost would constitute overhead costs. On the other hand client visits, traveling for demonstrations etc. would constitute variable costs that will keep occurring every time there’s a potential client and may not be predictable. Also, irrespective of sales, overhead costs will still remain to keep your setup active!

Before you borrow any money, it is vital to have a repayment plan as well as projected business plan, to understand how your cash flow will operate. Once you segregate your expenditure into fixed overhead costs and variable expenses, you need to sort out the expenses that will be one-time events. A business loan or credit line can help with these one-time costs provided your business is able to afford it once projected sales begin to be realized! You need to anticipate all possible scenarios and ensure enough cash flow over the period of few months before you take a personal loan.

Types of Personal Loans

The beauty of this financing, is that it often can be obtained with or without security collateral. A secured personal loan involves borrowing against an asset such as your property. If you default on your repayment, the lender can claim your asset! On the other hand, unsecured financing, does not need collateral, however, the lender generally protects his loan from possible default by charging you a high rate of interest. In the event of a default, the lender may resort to legal channels to recover the amount.

If you are confident of repayment, it is best to go for a secured personal loan wherein you can negotiate a low annual percentage rate (APR) while pledging your property or car or any other asset.

If your business startup requires funding that cannot be met by a single personal loan, you may even borrow more than one loan. The more you expose yourself to the debt scenario, the more financial risk you’re exposing yourself and your business to. It is important to conduct thorough research and prepare for contingencies. It is always best to dig into your own savings or borrow from close relatives if they’re willing and able however, for those that need instant cash and a huge amount at that, a personal loan could be a lifesaver. In fact, if you successfully repay your personal loan within the stipulated time, you could even get a good credit score which in turn will be better for the future of your business!

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