It’s a new year—and with the flipping of the calendar comes a chance for your business to seize big opportunities. They could be many things: opening a new stream of revenue, introducing a new product, buying an outgoing competitor’s equipment, or something else entirely.
Realistically, though, most business owners don’t have the capital on hand to finance a big purchase, especially many small businesses that work with thin cash margins. Many need to look into a business loan to get things done.
If you’re ready to kick things into the next gear in 2020, here are some business financing options that might help you get to where you want to be. We’ve paired them with exciting opportunities you might be entertaining for your own company so that you can get a sense of how to best deploy capital.
How to finance a business expansion
Be it an extension of your existing shop or office, or opening a brand-new location in a promising market, the prospect of growing the footprint of your business might be on the docket this year. And, as you likely know, expanding tends to be an expensive proposition—but there’s the potential for major reward, too.
If your expansion means financing fixed assets such as real estate, land, or major machinery, consider an SBA CDC/504 loan. These types of loans are often considered best in class, since they have some of the lowest rates, highest capital amounts, and longest repayment terms. That’s thanks to the U.S. Small Business Administration, which guarantees the money to lenders (often small banks) in case of borrower default. But it’s important to know that these loans aren’t easy to get—they’re competitive among top borrowers, and financing generally takes a few months.
You may also want to consider a term loan. These loans are less competitive than SBA loans, faster to approval, and give you more flexibility with the capital. Term loans are “traditional” business loans in the sense that once a lender approves you, you’ll get a lump sum of capital in your business bank account that you can spend as you need. Capital amounts go into the hundreds of thousands, sometimes even millions, and repayments are auto-debited from your account, so you don’t have to fret about remembering to pay.
How to grow your product or service line
Maybe you see whitespace in the market, or your customers have overwhelmingly told you they want a new type of offering. There may be an opportunity to expand what your company provides. The idea of tapping into existing resources may make these ventures more daunting—or, simply, you might not have the capital available to do it. There are, however, several ways to finance expanding your services or product lines.
Consider a business line of credit to begin. This kind of working capital loan is the preference of many business owners, who love the ability to spend on expenses as needed, and only pay interest on what they use. With a business line of credit, you’ll work with a lender to get approval. They’ll provide a line of credit (not entirely unlike you would have with a business credit card—but, generally, a much larger amount of credit), which you can then “draw” against as you need it to finance your new offerings. Many business lines of credit are also “revolving,” which means you’ll have access to the full capital amount again once you repay your draw.
Another strong option for financing this opportunity is an SBA 7(a) loan. Like its counterpart we talked about above, this is a government-backed loan, which makes its terms very favorable for borrowers. These working capital loans are either lump-sum term loans or structured as a line of credit, both of which will enable you to pay for expenses incurred in product development as you need to. Unlike a business line of credit, however, this competitive loan will take a few months to fund if you’re approved.
How to hire your dream team
Perhaps all of this growth you’re experiencing means that you have an opportunity to bring on new team members, create a new division, or hire people who have something really special to bring to your business. That’s amazing—but with low unemployment rates, you may need to move quickly and decisively on hires (think weeks instead of months) in order to secure them. Providing incentives such as competitive salaries and signing bonuses can be expensive.
For payroll, cash flow is a major consideration. One of the absolute best business financing tools for bolstering your cash flow is a business line of credit, which can help you get that cash infusion to pay for new hires upfront before they start generating dividends for your company. You can draw funds as you need to pay for signing and onboarding, and continue to do so as your team grows. A line of credit can also help pay for any increases in overhead due to a bigger team.
Another option to help with cash flow considerations is invoice factoring. This type of business loan can help you free up any payments that are either overdue or not yet due. If you have a lot of capital tied up in unpaid invoices, invoice factoring enables you to sell your invoice to a lender, so you’ll get the total balance less a small fee, ASAP. This capital can enable you to pay for those hiring expenses faster than waiting on your customers to pay, which could mean the difference between landing your new team or watching them go to your competitor.
Overall, it’s likely that your expansion plans will require capital. Being savvy about the type of financing that you explore, including understanding how you access your capital and how it’s structured, will be the key to matching yourself with the right type of loan to accomplish your goals.