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Are you turning away work and finding it tough to keep up with demand? Are you working 24/7 to get the next project completed or shipment delivered? Is your space getting too cramped, or are you using outdated equipment? Do you have ambitions to expand your business?
If you answer “yes” to any of these questions, it could be time to invest more money in your business. A cash infusion can help you hire new employees, buy new equipment and inventory, or expand your physical space, among other things.
Recognising that it’s time to put more money into your business is the first step – and a big decision. Now you need to think about where you’ll get the funds.
Businesses have a number of options when it comes to funding. Where the money comes from could significantly affect how your business grows, so you need to evaluate each option against your own business plan and goals. Below are a few options, but you should do your own research to determine what will work best for you and your business.
Reinvest profits in your business
How much of your profits do you reinvest into your business annually? While the experts may not agree on an exact amount (some advise reinvesting as much as 50 percent of annual earnings back into a business), if you’re already operating profitably, why not invest that money right back into your business to make it grow more?
Just make sure to triple-check your budget and revenue projections before reinvesting your profits (and keep some cash on hand for unexpected emergencies).
Take out a small business loan
If you’re looking to fund a larger project – like renovations or equipment – a small business loan might be the way to go. You might apply for a traditional small business loan through a bank. But be aware that this route often has a more time-consuming application process that may require a variety of supporting documents.
In many situations, business owners may find that taking a loan through an online lender (sometimes called an alternative or non-bank lender) is simpler, faster to get and more flexible than other funding options – and it’s becoming more popular.
With Square Loans, the application process takes just a few clicks, and upon approval, funds can be transferred into a borrower’s bank account in as little as one business day. Since starting to offer business loans in the US, Square Loans has provided funding to over 435,000 small businesses.
Apply for a business line of credit or business credit card
Business credit cards are a fairly accessible form of credit – you’ve probably received a few offers in the mail already – but whether or not you are approved and the rates you are given often vary based on the terms of the card and your business’s credit situation. And accumulating credit card debt could be more expensive in the long run than a small business loan (if the rates are high or you don’t pay it off quickly).
A business line of credit is also an option for rainy day funds and unexpected expenses. A line of credit, however, may be more difficult to qualify for than a business credit card. It sometimes has stricter credit requirements, but often has lower pricing, which makes it a good fit for a healthy business with higher credit scores.
Whether you’re thinking about a business credit card or a line of credit, you want to evaluate the terms and conditions you are given to make sure it is the best decision for your business.
Use your personal funds (self-funding)
Using your personal savings to help grow your business is another option. You’ll want to think through the personal and business risk you would take on before going down this path.
Ask your friends and family
Have your friends and family shown an interest in helping you meet your small business goals? If so, this could be the perfect opportunity for them to help fund your business growth. Investing their cash in your business could help with renovation costs, expansion costs or even research and development for new product lines.
If you go down this path, you should take the time to consider:
- How involved will your friends and family be in the strategic and managerial decisions?
- Will this change the way your business is structured?
- What does repayment look like?
However you decide to structure it, work with a legal professional to put the agreement in writing.
These are some of the more common ways that businesses find funding. You might have other options available to you as well. Make sure you consider the pros and cons of each source – in light of your business’ specific situation – before choosing the one that best achieves your goals.
This article is for informational purposes only and does not constitute legal, personal, or tax advice. The information contained herein is subject to change and may vary from time to time. For specific advice applicable to your business, please contact a professional.
