Expanding Your Business? Here's How to Secure the Funding You Need

By Stephen Sheinbaum

You’ve made the decision to expand your small business. Whether your business expansion means adding more inventory or opening a second location, you will likely need outside capital to make your dreams a reality. To get financing, you’ll need to draw up a plan which covers how you will spend and repay the funds, and a list of funders who will be most likely to provide the capital you need.

Organize Your Finances

But first, you need to get your financial house in order. Many funders, especially traditional lenders, will want to see a clear and concise road map of your business’s cash flow. If you aren't already producing income statements, balance sheets, and cash flow statements, you’ll need to start doing so.

Once you have your historical financial data in hand, you will need to generate projections showing how your financials will be changed by your expansion. For now, you’ll need monthly projections for your first year post-funding; however, depending on the term of the funding you receive, you can make quarterly or semi-annual projections in future years.

These projections will also be the bedrock of the business plan you will need to present for many kinds of traditional funding. Even if you are not going to be funding through a brick-and-mortar bank, writing a business plan is a good common sense step. It compels you to look at your competition and your business’s competitive advantage--both of these are likely to change after your expansion.

Your ability to track current expenses and income, and to predict the future in both categories, will be greatly enhanced if your financial systems are up-to-date. For retailers or restaurants, it means having a point-of-sale terminal which tracks sales by category and connects with your accounting system. For businesses which rely on invoicing, it means an electronic invoicing system from which you can immediately bill clients (no more waiting for the monthly bookkeeper visit) and monitor that payments are made promptly.

Know Each Funder’s Requirements

Each potential funding source has different rules and requirements, and you’ve got to be educated about them before you start the process—and before you make a commitment.

For example, some funding options will require collateral. You might have to pledge your house or key equipment to receive the funding or to secure the best terms. Some funders will not lend to certain industries, notably restaurants and bars. Some franchises might not qualify for a loan guarantee from the Small Business Administration (SBA). And most traditional lenders will need to see your business has been open (and under your management) for at least two years.

You’ll also need to ask lenders some questions about the lenders you are considering to ascertain their appropriateness for your business and capital needs; these questions go beyond the basic question of whether they lend to businesses like yours.

You will need to question potential lenders about what kind of funding options are available. Not every lender—traditional or alternative finance lender—offers every kind of funding. If your expansion involves expanding your inventory, you’ll need to find a funder that offers short-term funding or a line of credit. If your expansion means moving to a larger premises or opening an additional location, you’ll need a funder with expertise in long-term loans and real estate.

You might also want to consider registering with the SBA’s LINC tool to be connected with lenders already approved by the SBA. Doing this could mean fewer paperwork hassles for you down the road.

One more big question to ask: ask your funder what kind of documentation is necessary to be approved.

Gather Your Documentation

What you'll need to qualify for expansion funding will differ from funder to funder. Alternate finance companies, which operate almost exclusively online, have lightweight applications that require very little documentation from you. You won’t have to dig out your financial statements because these lenders can pull the information they need from secure online records on credit transactions and banking. However, many alternative finance companies will ask to see a copy of your lease or business premise’s mortgage before they finalize funding, so be sure to have those documents handy.

Funding from traditional lenders is more document intensive and the SBA’s (7)a loan application checklist is a great guide to the types of information needed. Some of the paperwork requests could trip up even the most diligent small businesses, like being able to show resumes of the business's owners and managers, or copies of your company licenses, articles of incorporation, and key contracts. If your business is a franchise, you’ll need to submit a copy of your franchise agreement if you need traditional expansion funding.

Show How the Funds Will Be Used

The last step to securing expansion funding is talking about how the funds you receive will be used. For alternative funders, this will likely be an actual conversation, part of what alternative finance companies call a merchant interview.

For traditional lenders, you will be writing details in a section of your business plan and providing supporting data in your financial projections. Be as specific as you can; talk about the wholesale cost of the new line you’ll be adding, your retail price, and the number of units you expect to sell each month.

If you have a restaurant and you will be adding more seating, talk about how often those tables will turn and the additional revenue you expect to bring in—as well as any extra costs you will incur to serve those patrons. Your funders are counting on your success!