The owners of some small businesses may be put off the very idea of expanding their enterprise – they are happy with the existing scale of operations; familiar with the existing market and customers; and, they are content with the level of earnings that the business continues to make.
In a rapidly changing world, however, it is difficult to stand still. There may be occasions when the continued viability of a small business depends on expansion in order to stay in the market for the sale of its goods and services.
Some business owners may take the view that constant expansion is a normal state of affairs for the successful enterprise – expansion is the very sign of success.
Whilst this might not reflect your own approach to enterprise, the following circumstances might be ways in which the business environment is telling you that it is time to expand:
- are you keeping your customers satisfied? If you cannot meet the demands and orders of your existing customers they are likely to look elsewhere, unless you expand your business to meet those demands;
- are your employees keeping your business satisfied? If you are demanding too much of your employees simply to keep up with existing orders, it may be a sign that the business needs to expand by taking on more staff;
- are you keeping up with the ? In a changing world, your competitors may be expanding whilst you are trying to stand still and, in that situation, the winners are likely to be pulling the rug from under your feet;
- are you abreast of changes in the market for the goods and services you offer? Or have these become out-dated and no longer meeting the demands of the market or of your customers? If so, it may be time to change through the expansion of your business.
How to expand
The answers to the questions above suggest some of the many ways in which you might expand your business:
- you might want to launch new products;
- penetrate new markets – through the kind of marketing campaign discussed in more detail on the website This is Money, for example;
- buy out a competitor business or businesses; or
- enter into a joint venture with a new enterprise or with a rival business.
These are just a few of the ways in which you might expand your business. Whatever course you decide to pursue, however, you might take comfort from the fact that the growth and expansion of small businesses is given considerable importance by the government.
It points out that some half a million small businesses are created each year and the small business sector employs about a half of the total workforce. Because of that, the government has pledged to make it easier for small businesses to:
- gain funding for growth and expansion;
- develop new ideas; and
- expand into new markets.
Business finance for expansion
Whatever course you may choose in order to expand your business, you are unlikely to be able to do so solely on the retained earnings from your normal business operations. Just as the government recognises, in other words, you are likely to require new business funding.
As the government also recognises, however, most small business owners find that “the banks are still unwilling to lend” and that other sources of finance, such as venture capital, are simply not available.
Fortunately, there are a number of alternative sources for small business funding.
The British Business Bank is an initiative by the government itself which promises to unlock some £10 billion in business finance within the next five years through a series of debt and venture capital arrangements intended to stimulate lending to small businesses
In addition, there are a number of government, local authority and trust fund grants and loans available to qualifying small businesses. The latter may sometimes appear somewhat unconventional and some examples of the imaginative funding schemes discovered by five small businesses are published by the website Small Business.
Despite the potential resources of the British Business Bank and the variety of schemes it manages, access to those funds is likely to remain relatively difficult. Grants can take many months to agree, and even then you may not get accepted.
Short-term B2B lending
Here at Merchant Money, short-term finance for small businesses is considerably easier, and much quicker, to obtain;
- a simple online application is all that it may take to get approved for an unsecured loan of between £1,000 and £50,000;
- repayment terms are typically up to a maximum of 24 months, although you have the flexibility of choosing a shorter term to suit their needs;
- formal consideration of an application may take no longer than a single working day and the requested funds may be deposited directly into your bank account within just a matter of hours following approval;
- borrowers are typically limited liability companies that have been in business for a minimum of one year;
- the loans are generally unsecured, but for the personal guarantees of two directors of the applicant company.
Peer to Peer lending
Another source of business expansion funding could be Peer to Peer lending.
This is a relatively new method of raising business finance and it involves a third party – typically an online agent’s “platform” – bringing together the business that needs to borrow with a consortium of individuals prepared to lend the amount requested.
It is generally argued that businesses benefit by securing loans at rates of interest lower than might be charged by a bank or other financial institution, whilst the lenders also receive a better return on their “savings” than in a conventional savings account.
Peer to Peer lending has attracted some criticism from the Financial Conduct Authority (FCA), however, which accuses some platforms of exaggerating the benefits to both borrowers and lenders and failing to emphasise the risks to which lenders may be exposed.
Equity crowdfunding is a similarly innovative method for raising equity funding through a “crowd” or consortium of investors or lenders. It may be seen that equity crowdfunding, therefore, relies on very similar principles to peer to peer funding.
In fact, the FCA refers to peer to peer lending as “loans-based crowdfunding” and equity crowdfunding as “investment-based crowdfunding”. Both sources of funding are now regulated by the FCA.
- a further source of funding for small businesses – and one that has been around for rather longer – is factoring, or as it is sometimes also known, invoice financing;
- it is a method that relies on the asset retained by the typical company – its unpaid invoices, which represent the debts that are still to be collected;
- the value of those debts may be recognised by a third party, called the factor, who is prepared to advance a major proportion of the amount of unpaid invoices – the factor effectively “buys” your unpaid invoices;
- as you collect your customers’ payments, you repay the factor the amount already advanced, plus a commission for the service provided;
- factoring may hold a number of benefits for a company in need of additional working capital since the sum advanced is entirely flexible – as new invoices are issued to your customers, you may increase the size of the advance from the factor;
- in other words, your ability to secure cash advances increases in line with increases in sales;
- invoice financing is typically quicker and easier to set up than a more formal bank loan and requires no further security against the factor’s loan;
- usually, your company is still responsible for collecting payment of your customers’ invoices and for managing any bad debts – indeed, the factor typically reclaims any unpaid invoices and bad debts from the cash advance already made.
If you have decided to expand your business, therefore, there are a number of ways in which you might do it and a number of ways in which that expansion might be financed.