How to Finance a Growing Business
I want to share an article from The Wall Street Journal written by Colleen DeBaise about how to expand your home-based business to increase wealth with business lines of credit, microloans or bank loans.
How to Finance a Growing Business
We’ve looked at how you can get your hands on the cash necessary to start your own business. (See related article, “How to Fund a Start-up”) But once you’ve been operating for a few years, you might need another round of cash—this time to expand or improve your business.
For instance, say your home-based business has really taken off. You’ve hired a few employees, you’re regularly meeting with more clients—and now the space in your basement seems pretty tight. You dream of buying or leasing some nice office space, furnishing it to suit your tastes, wiring it for Internet access and installing new equipment.
Expansion into new locations or territories is generally the most common reason a small business might search out a business loan. An entrepreneur who’s been in operation a few years might have other reasons to seek out financing, too—perhaps he or she wants to buy more inventory, upgrade equipment, renovate an existing facility or simply boost working capital.
Sometimes a growing business might have enough capital to fund an expansion or improvement outright. But the owner might seek out financing to ensure there’s enough money on hand to cover any unexpected businesses expenses that arise. And of course, some business owners simply can’t afford to lease new space or open another store unless they’ve got a loan. In that case, they’re betting that the revenues generated by the expansion or improvement will cover the cost of the loan.
It’s always a calculated risk to take on debt, so if you are considering it, you need to make sure the benefits are worth it. Maria Coyne, head of KeyBank’s Business Banking in Cleveland, cautions that loans aren’t for the unprepared: “If you lend someone money who’s not ready for it, or who doesn’t have a plan for it, then in many cases you are just hastening their failure.” In other words, you’d better do your homework first.
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