business expansion loans; where and how?

A business expansion loan is used for expanding your existing business. This type of loan is not for funding your new business to help get it off the ground. Lenders require business expansion loan borrowers to have an existing viable business. Expansion loans can help businesses become larger or more productive, depending on the type of growth the business is looking to obtain.

Business Expansion Loan Requirements

Getting any type of loan requires you to submit an application and an expansion loan is no different. Below are some documentation lenders will want to see from you and your business:

  • Profit statements
  • Loss statements
  • Business financial records
  • Business bank account
  • Tax forms
  • Legal documents revealing the business’ structure (Corporation, Partnership, etc.)
  • Business plan
  • Business credit score
  • Statement of loan purpose

Lenders may also require you to provide copies of your personal financial records and credit score.

Credit Score and Reports

Your credit score is an extremely important part of your loan application. Both credit scores, business and personal, indicate to lenders and financial institutions whether or not you have a history of paying bills on time and managing your debt wisely. Credit scores and reports also let lenders know your business’ debt to income ratio.

Prepare a Business Plan

Business plans are useful to not only lenders but businesses as well because they lay out a clear path and vision for expansions. A business expansion plan should include the following:

  • Company description
  • Services or products offered
  • Company’s financial statements
  • Market analysis
  • Industry analysis
  • Marketing plan
  • Sales strategy

A business plan is a great starting point in determining how much capital you will need to expand your business. Therefore, forecasting the associated growth costs of an expansion is crucial. For example, a company is looking to expand its retail presence and in order for the company to analyze growth costs, it will need to put together estimates on leasing or building a location from the ground up, hiring staff, and producing new or additional inventory. From there, the retail business will need to perform a break-even analysis to determine how long it will need financial support to sustain the expansion before becoming profitable.

Determine How Much Capital You Need

Determining how much capital you will need to expand your business should be easier to do than determining the capital needed to start a new business. Use your business’ existing records to forecast expenses and potential revenue streams. If you are expanding to new locations, use numbers from your first or current location(s) to assist with forecasting costs. If you are adding new products, use current product hard costs as a forecasting starting point.

Where Can You Get a Business Expansion Loan?

Banks, credit unions, and alternative lenders are all places you can go to inquire and apply for a business expansion loan. Additionally, the U.S. Small Business Administration (SBA) offers loans to help fund small business expansions. In order to qualify as a small business, your business must not exceed 500 employees. Also, the SBA does not make direct loans. Instead, the SBA insures business loans, which reduces the risk for lenders, making it substantially easier for small businesses to qualify for loans and receive lower rates when applicable.