Getting past the start-up phase in any small business is a major accomplishment. But it is no time for resting on one’s laurels either. Expanding an established business means finding another round of funding.
Where is the best place to find expansion financing?
1. Funding from family members
It may surprise you to know that the majority of small businesses use their personal assets or obtain extra funding from family members. According to the 2007 Survey of Business Owners (SBO), 51.2 percent of small employers kept financing for expansion within the family. This is certainly a nice option, if available, to stay out of debt and maintain equity in your business.
2. Current business profits or assets
The next most popular place to find funds for growing is current business profits or assets, with almost a third of small employers expanding with the help of their previous success.
3. Loans from banks
Another third of survey respondents took out loans from banks. While small business loans have been harder to come by since the coronavirus pandemic, credit conditions are loosening and more big banks are looking to work with qualified small employers.
4. Credit cards
Credit cards are another possible source of expansion financing. Almost a quarter of small business owners reported using their credit cards, at least in part, to grow their companies to the next stage. If you do not already have a business credit card account, this could be a helpful resource to tap as needed.
5. Home equity loans
More than one in ten small employers took a big risk and pulled out equity from their homes in order to pay for expansion. If you have substantial equity in your home, this can be a viable option, but it does come with weighty consequences: you could lose your home if your business fails or falls short.
6. Government-guaranteed loans
The hardest sources to crack are government-guaranteed loans, like SBA loans and venture capital. Only 3 percent and 0.5 percent, respectively, of business owners, used those venues. While venture capital is immensely beneficial to those who can secure it, very few businesses have everything that investors are looking for.
When it comes to expanding your business past the start-up phase, there are many paths to take to find funding. Whether it’s bank loans or credit cards, finding the right one for your firm is the most important next step.