How to Fund Your Business Growth
Summary
- Start with a clear estimate of what growth will cost, including payroll, space, equipment, professional fees, insurance and taxes.
- Match the financing option to the need, whether you are covering short-term cash flow or making a larger investment.
- Prepare business and personal financial records before you apply so lenders can understand your plan and ability to repay.
- Consider bank financing and government-backed programs, then compare the requirements and repayment obligations before borrowing.
Growing a business often requires money before the next stage of revenue arrives. Whether you are adding equipment, expanding to a new location or building from the ground up, a thoughtful financing plan can help you understand what you need and how you may repay it.
The first step is to estimate the cost of your plans. From there, you can compare borrowing options, organize the information lenders may request and choose a path that fits your business.
Start With the Full Cost of Growth
Before you borrow, make a detailed list of the expenses connected to your plan. As your business expands, many of your regular operating costs may rise as well.
Your estimate may include:
- Employee salaries
- Rent and utilities
- Office supplies
- Equipment, machinery or tools
- Remodeling or decorating costs
- Legal and professional fees
- Insurance
- Taxes
If you are unsure what to include, an accountant or another qualified professional may be able to help you estimate the costs of reaching your next stage of growth.
Match Financing to the Purpose
Not every funding need calls for the same approach. If you are comparing small business loans, start with what the money will pay for and what your business can realistically afford to repay.
A working capital line of credit can help with short-term or seasonal needs. It can provide access to funds for operating expenses when timing creates a gap between money coming in and money going out.
A business credit card can be another tool for routine business purchases. As with any form of borrowing, review the terms carefully and avoid taking on more debt than your business can reasonably repay.
Longer-term financing may be useful when you need to spread repayment over time for larger business costs. Depending on the loan, a lender may require collateral, a promissory note or installment payments.
Prepare Your Information Before You Apply
Lenders may ask for a detailed look at both the business and the people behind it. Having your records organized before you apply can make the process easier to navigate.
Be prepared to provide information such as:
- A business plan
- A balance sheet and income statement
- Cash flow projections
- Profit and loss reports
- Personal financial statements for business partners
- A credit report
- Personal income tax returns
- Information about existing business debts
A potential lender may also ask how much of your own money you are investing in the business.
## Build a banking relationship before you need a larger loan
It can help to work with a financial institution that is familiar with small and growing businesses. If you do not already have a primary banking relationship, consider establishing a business checking account or a smaller credit relationship before you need a larger loan.
A longer-term relationship can give you a consistent place to discuss your business plans, financial needs and future borrowing options.
Explore Government-backed Financing
Government loan programs can provide another financing path for qualifying businesses. The Small Business Administration's Microloan program is designed to help eligible businesses finance needs such as machinery, equipment and other basic business expenses.
The SBA also offers Lender Match, a tool that can help businesses connect with participating lenders. Program requirements, loan terms and eligible uses can vary, so review the current details before applying.
Borrow With a Clear Plan
Financing can support growth when it is tied to a specific business need and a repayment plan you understand. Start with a realistic cost estimate, prepare your financial information and compare options before you commit.
Most importantly, avoid borrowing more than your business can afford to repay. The goal is to give your plans room to move forward without creating more financial pressure than your business can support.