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Posted 12th January 2023

How SMEs Can Fund Expansion – 6 Innovative Strategies To Consider

Starting a business requires a lot of time and effort, but alongside this, it requires monetary input. Financing a startup business, especially one that may be fairly niche or if you have limited or no contacts within your industry, is naturally going to be difficult. In fact, it’s become much harder today to raise funding for a startup than ever, and that means it’s important to put plenty of thought into this step during the planning stages to ensure you have as good a chance as possible to fund your business.

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how smes can fund expansion – 6 innovative strategies to consider.


How SMEs Can Fund Expansion – 6 Innovative Strategies To Consider

Starting a business requires a lot of time and effort, but alongside this, it requires monetary input. Financing a startup business, especially one that may be fairly niche or if you have limited or no contacts within your industry, is naturally going to be difficult. In fact, it’s become much harder today to raise funding for a startup than ever, and that means it’s important to put plenty of thought into this step during the planning stages to ensure you have as good a chance as possible to fund your business. However, while the difficulty of funding a startup from the beginning can be quite great, it’s still not necessarily smooth sailing once you begin searching for further funding in the future. For example, when you’re looking to expand your small or medium-sized enterprise. To help you with this process, we’ve listed six innovative funding ideas, such as acquiring small business loans,  that you can consider when creating a plan for expanding your business. The key thing to remember here is to take things slowly, do your research, and stick to your plans.

Debt Financing


The first option here is perhaps one of the most common options that people think about when looking to fund a business expansion or venture. This is where you borrow from a bank or other lender and repay that loan with an agreed repayment plan. This is the same as if you got yourself a personal loan for home renovations or bought a car on finance. This step allows you to retain full ownership and control of the business, as you don’t have to give up any equity in the business itself when taking out business loans. Naturally, this makes debt financing a good option for risk-averse entrepreneurs as you simply have to think about paying back the loan rather than any other things, such as investors pulling out or having less control over your business.

Equity Financing


Equity financing is where you sell a stake in your company to an investor or multiple investors in exchange for capital. If you feel confident in your future success as a business and have a proven track record already, this can be a great option. This is why it’s a good option for those looking to expand, as you have already proven that you can survive as a business. Of course, there are advantages and disadvantages of equity financing. While this type of business funding may allow you to build up some significant capital which can then be invested back into your business for growth, you’re still giving up a partial stake in your company. If you’re particularly attached to your business and have a strict vision of how you want the business to develop, bringing other people into that business, who will now have a claim on how it operates and the direction you should take it, may cause disruptions and lead to stressful disagreements.

Government Grants


Of course, this next option depends on the country your business operates in. However, if you live in the UK, there are lots of potential government grants you could get to help you with funding your business. The UK government naturally wants to help businesses grow as this positively impacts the overall economy of specific regions and the country. There are pros and cons, as with anything, to acquiring a government grant for funding your business. First of all, they are non-repayable, so you won’t have to worry about losing monthly income to cover the repayments you’d have to make when repaying business loans. Grants are also widely available as it generally benefits the government to invest in small and medium businesses as they will then offer jobs to locals and help to grow the economy. The disadvantages, however, are relatively restrictive. Writing a grant proposal can be a very lengthy process and may take a significant amount of time to get accepted. If it does get accepted, you are also bound to a contract which will often align with the government’s own wants and needs. This can mean that your spending will be monitored and even controlled to ensure you stick to the contract. They are also generally short-term solutions due to the smaller sums of money that are on offer. This means you’re likely going to be choosing one of the other funding strategies alongside this anyway.

Small Business Loans


Acquiring a small business loan could be the best option for you for a few different reasons. If you’re looking to grow your business, then the provision of extra capital from a small business loan is going to help you to do that. You can use these funds to purchase new equipment, hire additional staff, or invest in marketing and advertising efforts, all of which are key elements in the expansion process. As with any loan or financing strategy, it’s important to get advice on small business loans before you commit to this, as you want to ensure you’re choosing the right loan for you and that you’re going to be able to comfortably pay the loan back on time. When it does come to repaying a business loan, however, doing so in a timely fashion can increase your credit scores, making it even easier to borrow again in the future. As you then go on to use that business loan to expand your business, you’ll naturally increase the chances of your business making more profit. This then makes it even easier to pay off that loan.

Angel Investors


Another great option for a funding strategy is to seek an angel investor in your business. Of course, this isn’t always something that any business owner can find, and you will still have to convince that investor to take a chance on your business. Angel investors can often be entrepreneurs themselves, however, and if you do manage to get one involved in investing in your business, you can potentially benefit from more than simply their funding. Think of an angel investor as acquiring investment from one of the famed celebrity investors on the BBC show, Dragon’s DenThey will offer their insight and business experience to you as well as a monetary investment in exchange for a percentage of your business. This acquisition of a share in your company means that the investor is going to feel obliged and encouraged to offer you the best advice possible, as well as give your business the attention it needs to grow and become even more successful. This is because they have a vested interest now after buying into your business. Essentially, it is partially theirs now, and so you can generally trust them to put time and effort into the business, depending on how much they have invested, of course.

Crowdfunding Initiatives


Our last option here could be a great alternative to the previously mentioned and more traditional business funding strategies, such as debt and equity financing. Crowdfunding can be done via online platforms such as Kickstarter and Crowdfunder, and this allows businesses, as well as individuals, to raise money from a large number of people. This is often done in exchange for rewards and perks such as free products, discounts, or in some cases, equity in the business itself. There are also a few potential downsides to consider when it comes to choosing to crowdfund, over attractive options such as SME loans, however. First, it can be challenging to stand out in the over-saturated crowdfunding market and attracting the attention of potential backers is much harder today than it was five or ten years ago. Successfully running a crowdfunding campaign requires a well-crafted pitch, attractive and clear rewards or perks, and, as with any campaign, a bulletproof marketing strategy. Additionally, crowdfunding campaigns often come with deadlines and targets. While you can simply create a new crowdfunding target or use a platform that allows you to extend the crowdfunding period and add more rewards, these deadlines can still be stressful. Some platforms also only allow you to collect on the crowdfunding if the target is hit and will instead refund backers if it isn’t hit.

Categories: Business Advice, News


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