a millennial celebrating funding a business expansion

How to Fund a Business Expansion

According to recent research on small businesses, “84% of small business owners indicate that they’re feeling optimistic about the future of their companies.” This is a remarkable statistic to read, considering all small business owners endured the last couple of years. That said, funding a business expansion isn’t something to take lightly. Being financially prepared is especially important if that expansion is to be successful. 

Whether opening a new physical location or taking an operation online, it’s up to small business owners to adequately prepare their finances, budget for, and manage their expansion. Read on for how to fund a business expansion and ensure it comes to fruition. 

Map Out the Expansion Details 

First, it’s a good idea to document as many details as possible about an expansion. Mapping out the expansion details helps small business owners get a clear vision of what it will take to make an expansion happen. 

Explore the following questions to address all that will happen and all that’s needed to get the expansion underway: 


  • Why is it a good time to expand my business?
  • What prompted the desire for expansion?
  • Am I opening a new physical location or expanding my business online?
  • What does expansion success look like to me?
  • How will I continue growing the business I already have?
  • What costs are associated with the expansion?
  • Who will be involved in the expansion? Who will be affected by it?
  • Can my business finances support an expansion?

Furthermore, it’s imperative to consider the pandemic’s impact on the expansion. 

Consider the Pandemic’s Impact  

Small business owners must consider how current events could affect the profitability of the expansion. 

For instance, the pandemic is the most recent event to rock the world’s economy. The COVID-19 pandemic presents many challenges for small businesses, whether product creation, manufacturing delays, or completely shutting down. 

It may seem like an expansion is a long shot during this time. However, many business owners are moving forward with their expansion plans, especially those going international

The rise in remote work supports the ability to create a thriving global workforce, and taking time to gather resources and plan international development puts these business owners on a path to expansion success despite the difficulties this pandemic brings. 


All in all, it’s best to consider what’s going on in the world and prepare for how those events could affect profits. 

Additionally, it’s crucial to estimate how much an expansion will cost when considering all the details. 

Estimate How Much an Expansion Will Cost 

Funding a business expansion appropriately is reliant on understanding and estimating costs. 

List off every major expense associated with the expansion. Include minor expenses, one-time purchases, ongoing operating costs, and an emergency fund on this list to ensure all bases are covered.  

Once an expansion estimate is in place, small business owners should audit their current financial situation. 


Do a Financial Audit 

Small business owners must do a comprehensive audit of their financial situation before moving forward with an expansion. Go over all financial records, including profit reports, tax documents, current and fixed assets, investments, accounting practices, and financial policies. 

By reviewing business finances, a small business owner can confidently move forward with an expansion or decide to postpone it until their financial situation permits.   

If the financial audit results are good, the next step for small business owners is to create a budget. 

Create an Expansion Budget 

Once a small business owner estimates the cost of an expansion and is comfortable that their finances can support an expansion, they can create an accurate budget to stick to throughout the process. 

Detail exactly what you need money for and add an amount for emergency expenses. For example, if a small business owner is opening a new location, they must estimate costs for:


  • Hiring and onboarding a new team  
  • Ongoing operating costs like building rent, utilities, and payroll 
  • Inventory
  • New equipment 
  • Furnishing the new location

Including any technology needed for business operations in the budget is critical.  For example, a small business owner funding an expansion will require new software, like enterprise resource planning software or ERP

Granted, not every small business needs or uses ERP. However, this software can be beneficial during an expansion because it helps keep track of inventory and can streamline online orders, HR functions, and warehouse management. 

Also, it’s a wise idea to consult a financial expert when funding a business expansion. 

Consult a Financial Expert 

Small business owners have a better chance of funding a business expansion when consulting a financial expert. Lean into the legal team or financial expert you’re currently working with to determine what’s needed for a smooth expansion process. It might also be good to involve a financial expert who is exceptionally knowledgeable in expansion procedures and processes. 

A financial expert will give the go-ahead for the expansion, or they may suggest things to ensure the expansion happens without issue, like improving your business credit. 


Improve Business Credit 

Sometimes, small business owners find they aren’t as ready as they thought to fund an expansion. As a result, many learn that there are various steps they need to take to clean up their business finances before financing an expansion. One of those steps is likely improving their business credit

The higher your business credit score, the easier it will be to get a small business loan, attract investors, or simply get people on board with the expansion. Tips for improving business credit include:

  • Paying down current debt
  • Decreasing credit utilization 
  • Paying bills on time 
  • Making a plan for collections 
  • Checking your credit report and addressing discrepancies 

When a small business owner takes the necessary steps to improve their business credit, have a budget, and expansion details in hand, they can move on to researching funding opportunities. 

Research Funding Opportunities 

There are various ways to fund a business expansion. What’s available to you largely depends on current business success, how healthy the business finances are, the scope of the expansion, and the strength of personal and professional relationships. 

Small business owners should take their time researching the funding opportunities available to them. Start with a quick internet search for how to fund a business expansion. Then, read up on the requirements of each type of funding and see if you meet the minimum qualifications. 


One of the first funding opportunities that come to mind or pop up in the internet search is a small business loan. 

Apply for a Small Business Loan 

One of the most popular ways to fund a business expansion is through a small business loan. Various business loans are readily available should you prepare and apply for them with best practices in mind. 

As stated above, small business owners should prioritize improving their business credit score and overall financial landscape to be approved for a small business loan. 

Small business owners would also benefit from outlining their expansion vision, having documentation of their current business’s success, and reports that back their business growth predictions to improve their chances of securing a small business loan. 

Another way to fund a business expansion is by working with investors. 


Work With Investors 

Small business owners can work with investors to fund their business expansion. However, they must consider the pros and cons of working with different investors. 

Venture capitalists, for example, are all about backing high-growth companies with large sums of money. Still, their loans usually come with high interest rates, and you’ll have to give up equity in your company. 

Angel investors also put their own money into various entrepreneurial ventures. Their requirements are a bit more relaxed, and they’re usually more willing to work with a small business owner that isn’t perfect on paper. But not knowing who they are could be a potential downside to working with this type of investor. 

Just be sure to adequately research the different kinds of investors and consider the advantages and disadvantages equally. Then and only then should you move forward with working with an investor. 

Family and friends can also play a big part in funding a business expansion. 


Borrow From Friends and Family 

Don’t count out family and friends as a potential funding avenue for business expansion. Instead, small business owners should reach out to their family and friends to see if they’d be willing to invest in their business expansion. 

At the same time, borrowing from family and friends should be done with caution. All it takes is one financial fallout with a family member or close friend to ruin a relationship altogether. The last thing you want to do is lose your support system. 

Furthermore, there are other creative financial solutions to consider when funding a business expansion. 

Consider Creative Financial Solutions 

If a small business owner doesn’t qualify for a loan, investors aren’t willing to take a chance on them, and family/friends aren’t an option, it’s time to think creatively about funding a business expansion. 

Consider creative financial solutions like crowdfunding, small business grants, or even pushing the expansion out to save money.  


Small business owners can also leverage the small business community or their professional networks to find funding for their business expansion. 

Lastly, small business owners can’t get completely sucked into the expansion to the point they forget about their current operation. 

Create a Plan to Continue Operating During the Expansion 

Small business owners mustn’t forget about their first location or online operation. Instead, they must create a plan to keep business booming during the expansion to continue growing and increase the chances of expansion success. 

The plan should address how to continue growing the first location while opening a second business, who will be in charge when you aren’t available, and so forth. 

Ultimately, creating a plan to continue operating during the expansion is crucial to be as seamless as possible.  


Conclusion 

Funding a business expansion is a challenge, but your chances of success increase with adequate preparation, budgeting, and management of the expansion process. Use the tips above to fully fund and adequately support a business expansion. 

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