After having taken wings, a growth-oriented business enterprise soars to new horizons. Business expansion entails several costs. You need funds to increase machinery, to buy more raw materials, and to streamline your supply chain.
Your enterprise would need more points of sales and delivery to increase your markets. You would need to increase your workforce and the marketing and research budget. More technological efficiency and consultation expertise will further boost your business.
Till a certain point, funds from bootstrapping, or those borrowed from friends and family, can support you. However, to expand, you would need to get funds from external sources. These funds will fuel the further increase of your turnover, customer base, markets, product line, and infrastructure.
Let’s Explore The Various Funding Options For Small Business Expansion:
1. Angel Investment
As the name suggests, a business, private or seed investor, supports your business expansion as an angel would have. Businesses seek investors, who show a keen interest in your line of business. However, you must compete with other organizations who are also trying to get funding from the same angel groups or networks.
An angel investor offers funds in exchange for convertible debt or ownership equity. There are several angel investors who are looking to invest in small businesses that show tremendous potential. A strong business plan can get you substantial funding for your business.
2. Equity Investment
The most popular options of equity investment are private equity and venture capital. For a growing business, venture capital is a preferred route. Private equity (PE) firms buy 100% ownership of the companies in which they invest. However, in venture capital, the controlling stake is much lower. Equity-based crowd funding is also growing in popularity. In crowdfunding, you can get funds without diluting your control, but it may be time-consuming.
3. Lending Initiatives By Government Institutions
Small business enterprises (SMEs) can get funds from government institutions such as SIDBI, NABARD and NSIC. They can support your short-term as well as long-term business finance needs. The Government of India also supports a collateral-free credit at lower rates. However, you need to follow strict regulatory requirements.
The Indian government has launched a scheme called Pradhan Mantri MUDRA Yojana (PMMY), also called MUDRA Loan. It offers three types of loans:
- Shishu loan – loan cover of up to Rs. 5 thousand;
- Kishor Loan – loan cover of up to Rs. 5 thousand to Rs. 5 lakh;
- Tarun Loan – loan cover up to Rs. 10 lakh
- Term Loans
Another funding option is term loans. They could be intermediate (< 3 years) or long-term loans. However, these loans require collateral and entail a difficult approval process.
5. Business Loans
You can avail small business loans from financial institutions in the form of line of credit. You can get approval for a certain limit of the loan, for a said tenor. Your monthly EMIs includes only the interest amount and not the principal amount. This decreases the monthly pay-out.
The principal amount of loan is repaid at the end of the tenor of the small business loans’ facility. Since you do not have to pay any collateral for these unsecured business loans, there will be no appraisal of the value of your assets. This reduces the need for voluminous documentation.
Compared to other funding options for small business expansion, business loans are easier to avail. Small business loan interest rates are comparatively low.
You can use the loan amount to expand the operations, infrastructure or working capital of your company. You can buy equipment or inventory as well.