Most small business owners have growth as one of their objectives. If things are going well, you want to grow and make more money.
One important part of developing a growth strategy is planning for funding. It will be hard to grow if you don’t have the funds. Whether it is opening a new location, buying more material or hiring new employees, you need the funds to support your efforts.
As a small business owner, you should not rush to the first available source of capital to fund growth. Different funding sources might come with different obligations. A wrong decision about funding could have a significant impact on the success of your business.
What are the funding options available to small businesses? Read on to learn about some of the ways a small business can fund a growth strategy.
Internal Funds
Using internal funds can be one of the simplest ways to fund business expansion. If your business is doing well and generating profits, you could turn that money around and use it to fund your growth strategy. This can be a good way to fund growth because you do not need to worry about approvals or paying interest.
With that said, it might be a risky play for some small businesses. Many small businesses rely on the cash they have on hand. Even if you have a little extra, it might serve as an emergency fund. The business could run into trouble if something happens and you’ve spent the money on growth.
Bank Loans
Applying for small business loans will be the obvious answer for many companies. A conventional bank loan can offer an affordable way to fund business expansion. Along with that, you can maintain any capital reserves the business may have. As long as your business has strong finances and a good history of paying back loans, it shouldn’t be hard to get approved for a loan. You might even be able to get more favorable terms if your business is eligible for an SBA loan.
Personal Funds
Putting your personal funds into the company can be another way to fund growth. If you have the personal finances to do it, there can be advantages. Just like with internal funds, you won’t need to worry about getting approved for a loan. You also won’t have to worry about paying the money back or paying interest.
You could take money straight from your personal bank account. Some business owners might take a personal loan or tap their home equity to get funds for expansion. A business owner might even consider taking money from a retirement account. You just need to be careful when leveraging personal finances for business. You do not want to put yourself in financial distress to grow your business.
Investment Capital
Maybe it is time to take your business to the next level by bringing on investment capital. If you already have an established business and a good growth strategy, you might be able to find investors willing to provide capital for a piece of the business.
Investment capital can be advantageous because you do not have to pay it back. If the investors have experience, they might also be able to provide advice or guidance that could be useful. The downside is that you have to give up a piece of the business. You will have other owners to deal with, and you might have to include them when you make decisions.
Crowdfunding
Small businesses are starting to turn to crowdfunding as a way to fund a variety of business goals. With crowdfunding, you are not looking to get all the funding from one or two sources. Instead, you ask a lot of people to provide a small amount that adds up to enough funding. In some cases, people donate the money with no expectation of a return. In others, it can be a form of debt financing. You also need to consider the fact that there are different platforms and models for crowdfunding.
Alternative Financing
Small businesses now have access to more funding options than they ever did in the past. This includes a variety of alternative funding options. Most of these options are available as a result of innovation on the internet. Some businesses might be able to use options like peer-to-peer lending or microlending as alternatives to traditional financing.
Take the time to investigate all financing options when developing a growth strategy. You want to make sure to use the funding that will be the best fit for your needs. Some businesses might even consider multiple sources. For example, you could combine a loan with internal funding so your business can take advantage of the benefits of both.