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Business Expansion Loans: What Are They, and Do You Need One?

There will be moments when a developing and prospering business will get a chance to grow and expand further. Companies might have already planned these opportunities months ago, or the growth may have been unpremeditated. No matter what the situation may be, having reliable expansion capital is critical. According to reports, 29% of businesses fail because of a lack of capital. Small businesses that are barely surviving financially have fewer opportunities to heighten growth, with how difficult it is to acquire profit. Companies should start considering business expansion plans when they are stable enough or have the capital to do so. If capital is a problem, business expansion loans can help owners obtain this opportunity for their businesses’ success.

Business expansion loans and their benefits

Business expansion loans are small business loans that allow business owners to receive sufficient capital that they will need for investments inside and outside their companies. Most of the time, companies use these loans for physical expansion. Expanding a business can also mean increasing capital or labor investments, such as hiring more employees and spending money on better marketing strategies.

The different types of business expansion loans

Traditional term loans

This type of business loan is the most favorable for an expansive range of objectives. Through a traditional term loan, lenders will grant a certain amount of money ahead of time, paid back with interest rates and fees over a settled time. Businesses best use this loan for renovations, capital needs, workforce investments, and many more. Individuals with an excellent credit history will usually receive the best terms and rates when applying for a loan. To qualify for the best rates, a lender will usually require a borrower to have a credit score of 620 and above.

Commercial mortgage loans

Another way to acquire more funding for your business is to find top mortgage lenders that can let you borrow a certain amount of money for expanding or purchasing business premises and improving or extending the property. Commercial mortgage loans give businesses the leverage they may need for matters concerning their physical stores or warehouses. Most of the time, these types of loans will allow a repayment term of 10-30 years depending on the total loan amount borrowed and the loan agreement set.

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The business line of credit

Through this loan, a lender will provide the borrower with a credit limit or a maximum amount of funds that you will be able to extract at any time. It is similar to a credit card since a borrower will only pay interest rates based on the borrowed amount. A business line of credit is a flexible option for businesses as long as they don’t exceed their credit limit and pay accordingly within the time allotted.

SBA loans

A Small Business Administration (SBA) loan is a longstanding alternative that the government guarantees. SBA-approved lenders generously provide funding with low-interest rates to businesses or entrepreneurs that may have been rejected for traditional term loans. This type of loan has three programs: the 7(a) Loan Program, Microloan Program, and CDC/504 Loan program. The loan amounts and terms of these programs vary, thus providing various choices for a wide range of borrowers. However, the qualifications for an SBA loan may be demanding since most lenders will have high standards in revenue and business history while looking for business owners with a minimum credit score of 680.

Equipment financing

Like a traditional term loan, equipment financing will allow you to receive a certain loan amount upfront to assist with purchasing the specific equipment needed right away. A particular period is also set for the repayment of the amount, with fees included. Businesses usually use this for expansions that may require more equipment. This type of loan will solely focus on that cost.

When is the right time to apply for one?

Ultimately, the most important thing to consider is whether applying for a business expansion loan is the best decision to make. It could be a bad or good decision depending on your business’s unique situation. It is best to take on this step when it is most favorable for a company. Expanding a business will be worth it if the time is right and the revenue earned after expanding will be greater than the growing money spent for the expansion. This can benefit a business if hiring more employees increases the speed of a company’s operations for a more efficient and productive workforce. Moreover, consider if expanding the business’ facilities will increase production or maximum occupant load for a retail business. These are some of the considerations that may help a business owner realize if applying for a business expansion loan will be worth it in the long run.

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