Expansion loans are ways for business owners to expand their business by hiring new employees, purchasing real estate, upgrading or adding equipment... things that would help a business grow. Many expansion loans can fall under the Small Business Administration (SBA) loan programs. They offer loan programs designed to meet the financing needs of a wide range of business types.
SBA loans help eliminate some of the risk to lenders by guaranteeing the loan will be repaid by the federal government in case of a borrower default. Lenders like to do SBA loans for this very reason, it limits their exposure.
Expansion loans should only be approached as a loan type if the borrower has 2-3 years of business tax returns and revenues that would support their loan repayment.
• Does your business have the cash flow to repay the loan?
• How soon after you expand will you see the ROI?
• Is the ROI worth the expansion costs or the increase in revenue after completed?
• How strong is the credit of the business or your personal score?
• Do you have collateral for the expansion costs to mitigate the risk for the banks?
The speed of return for your ROI will dictate whether you go for a short-term, or Bridge Loan, or a long term variable or fixed priced loan. Bridge loans are great for quick turn around times, but usually come from non-traditional lenders at slightly higher rates. However, they typically fund faster and with more flexibility.
Depending on how you answer the above questions will tell you, intuitively, whether expansion is the best idea for your business.
• Lenders like to see you have a net worth that equals or exceeds the loan amount. If you do not meet these requirements, team with another individual or entity that does.
• Talk to multiple lenders, secure your financing before another individual or entity purchases your desired property.
• Lower your loan to value (LTV) = a lower rate, typically less than or equal to 75% is preferred.
• Check your monthly payments with our Business Loan calculator.