Any business owner will inevitably come to a point where they’ll require more working capital to boost the company’s success and foster growth.
Prioritising cash flow is essential as you expand your business. However, the costs of buying too much property or equipment may put you in a risky financial position. One way businesses may access funds for expansion is through business expansion loans.
Business expansion loans are made for small businesses to reach further business goals. There are various business expansion loan types that could help with funding growth.
This article discusses business expansion loans and how they could help you in reaching your business goals.
What Are Business Expansion Loans?
Business expansion loans often provide small companies with lump sum amounts to help them purchase new facilities, equipment, and meet other business needs.
These small business loans may either be a secured business loan or an unsecured one.
Moreover, the repayment terms of these loans usually include an interest rate that varies depending on the type and choice of lenders.
So many business owners can greatly benefit from these loans by gaining more working capital. Business owners nationwide can apply for a business loan to fund their business expansion.
With these extra funds, you can grow your business faster, gain more physical assets, and increase your cash flow.
What Can Business Expansion Loans Be Used For?
The additional funding that these loans provide for small businesses can be used in various ways.
These are common uses for business expansion loans:
Increasing employee wages
Hiring new employees
Buying new equipment and other assets
Growing your existing products or developing new ones
Investing in new property development
Buying an existing business
No matter how you choose to use the loan, having fast access to additional cash can help you expand faster.
Types Of Business Expansion Loans
When delving into business finance, you may encounter several types of business loans. Each depends on your business’s industry, financial situation, and how quickly you need the loan.
These are a few common types of business loans:
Traditional Business Loans: A traditional business loan is often provided by a bank, where the borrower repays the loan over a set loan term. Businesses can use this type of loan for various expansion and operational costs.
Merchant Cash Advance Loans: With this type of loan, lenders typically give business funds but also deduct set portions from each future sale of the business until the loan is repaid.
Business Line Of Credit: This loan type utilises a revolving line of credit, where the business may continuously use the credit when needed. You can apply for this kind of loan and get an outcome in as little as one business day.
Equipment Finance Loan: Equipment financing involves small businesses using the loan amount to buy equipment or vehicles to be used as collateral to secure the loan. This method can help businesses get access to funds in a few business days.
Short-Term Loan: As the name suggests, these loans have shorter repayment terms than traditional loans. Therefore, business owners and SMEs often use short-term loans to cover immediate expansion costs.
Invoice Financing: Invoice financing uses a business’s outstanding invoices to get the loan. So, the business can gain needed cash by selling unpaid invoices to an individual lender or financial institution.
Unsecured And Secured Business Loans
Some of the business expansion loans may be unsecured business loans. Unsecured loans don’t require collateral and rely on the borrower’s creditworthiness. Though this makes them more accessible, they may pose a higher risk to the lenders. Therefore, the interest rate of an unsecured loan is usually higher compared to a secured loan. An example is a merchant cash advance.
Alternatively, businesses can opt for secured business loans, where collateral and a personal guarantee are required to get the loan. Your guarantor will be asked to cover for you in case you can’t make your business loan repayments. A good example of secured business loans is equipment financing.
How To Get A Business Expansion Loan
Typically, how you get the loan and where you get it depends on what it will be used for and how quickly you need the loan. These are general steps for getting a business expansion loan.
1. Evaluate Why You Need the Loan
Does expansion include buying new property? Is it for hiring new staff? Noting down what the loan will be used for will help you narrow down your loan choices.
2. Research Financing Options
If you’re already connected to a bank or a lender, getting a loan through them may be easier than other lenders.
3. Get The Necessary Requirements
These are some of the general requirements to secure a business loan:
18 years old and above
Australian citizen or Permanent Resident
Australian Company Number (ACN) or
Australian Business Number (ABN)
Personal identification documents
Good credit (bad credit may affect the lending criteria)
Individual financial statements (ex. tax returns, bank statements etc.)
4. Submit A Business Loan Application
The business loan application process generally involves discussing your loan options with verified lenders and submitting required documents. You may apply online or through in-person lenders.
Submitting a business loan application is an important process that requires careful research to find suitable financing options and thorough preparation to ensure you get the funding solution your business needs.
5. Await Loan Approval
Wait for news on whether your loan application has passed pre-approval and approval. After the lender approves your application, make sure to review your repayment options and check if there are additional repayments or other fees that may be included.
Is My Business Eligible For A Loan?
It is important that your businesses meet the below criteria and submit these documents to be eligible for a business loan.
Valid ACN or ABN
Business has been established for at least six months
Bank statements
Business plan outlining next financial steps
The above requirements are what lenders commonly check during the application process. However, note that some online lenders may have some extra requirements.
Fixed And Variable Interest Rates
While exploring business expansion loans, you may encounter a fixed or variable interest rate.
Generally, fixed interest rates remain constant and don’t change over time. Because it’s immune to market fluctuations, it stays consistent throughout the loan term. These loan types often have a fixed interest rate:
Equipment Financing
Short-term loans
Variable interest rates can fluctuate due to economic factors. Business owners may be able to implement various strategies to secure the most suitable interest rates for their financing options, such as refinancing. This typically results in lower capital costs and interest rates.
Conclusion
As you expand your company, getting business loans and exploring various options can be beneficial. With the extra funds and manageable loan terms, you can utilise business expansion loans effectively to boost your business’s success.
To know more about bespoke finance solutions that can help your brand grow and stand out from the competition, visit Lumi and contact our friendly team today.
We’re proud to offer the best Business Line Of Credit in the market. This revolving, low-fee finance solution offers full flexibility at zero risk, helping you make strategic investments and expand your business while managing your cash flow effectively.
If you’re ready to apply, click here.
Got more questions? Get in touch with our friendly team via phone at 1300 005 864 or email sales@lumi.com.au.
Disclaimer: We try our best to fact-check all information and keep it up-to-date, but this can not always be guaranteed. All of the information shared is for general use only and should not be considered personalised financial advice. Make sure to consult an accredited accountant and/or tax agent for personalised advice on matters related to your business’s or personal finance.