Fundraising directly influences the growth and success of a business. One significant advantage of funding the business with debt financing is that it helps grow a company while taking it to new heights without giving an equity share to financers. Even large companies require capital infusion to meet their short or long-term goals. Since most small and medium-sized businesses lack sufficient resources to fulfil their high capital requirements, most of them opt to take a Business Expansion Loan.Â
In this article, we will discuss these loan options and how they help a business achieve its goals.
What is a Business Expansion Loan?
Just as an individual needs loans to cover personal expenses like renovating the house, planning a wedding, or paying medical bills, business owners need loans to grow their business, increase inventory, open additional branches, etc.
Leading NBFCs and lending institutions offer entrepreneurs unsecured Business Loans, also known as SME loans, to help them expand their businesses.
Who is Eligible for an SME Loan?
A business owner who meets the eligibility criteria of a particular lending institution can get an SME loan. A private limited company, proprietorship, closely held non-listed company, or partnership firm in the manufacturing, services, or trading sector can qualify for a loan if it is at least three years old and has a minimum annual turnover of one crore. The applicants for Business Loans must be between 21 and 65 years of age.
How Does an SME Loan Fund Business Expansion?
Business expansion is the ultimate goal of any entrepreneur looking to achieve growth. Business progression is critical to every small business, allowing a company to improve its operations and reach new customers. Company owners looking to expand their business must explore the available financing options and secure their future. That is why many SME owners turn to unsecured Business Loans during uncertain times. Here are a few ways an SME loan funds business expansion:
- Build More Space for Serving Customers
If the business has a cramped space and is struggling to meet customer demands, funding a workplace expansion with a Business Loan might be the best choice. It will give more room for serving customers and increase sales.
- Diversify the Product or Service Line
SME owners may use a Business Expansion Loan to develop their product or service offerings, allowing them to satisfy a broader range of clients. Arranging funds for additional tools and inventory ensures a wider customer base with the appropriate options.
- Open a New Business Location
Another business expansion strategy is to open a new business location in a different area. It is an effective way to reach new customers in another town, city, or locality. However, opening a new business location is expensive and needs outside funding to afford the transition.
- Hire Skilled Employees
When a company owner expands the business, they also need additional staff to handle the increased operations. An SME loan provides the required money to hire skilled employees and build a solid team to fulfil increased demands.
- Acquire or Merge With Another Business
Acquiring another company or merging with it is an excellent way to see the business grow. It is an effective strategy to retain existing customers and simultaneously gain a new client base. Plan the finances to ensure that the merger or acquisition will be a lucrative move and apply for a Business Loan of an adequate amount.
Steps to Follow before taking a Business Expansion Loan
Here is a step-by-step procedure to follow before applying for an SME loan for business expansion:
- Defining the Funding Requirement: The most critical step is to outline the loan requirement in detail. Defining the funding necessity helps business owners borrow only the required amount, which they can repay with a burden.
- Creating a Business Expansion Strategy: After defining the loan requirement, create a business expansion plan by calculating the expenditure and appropriately allocating funds. A proper strategy will provide a general outline of how the company plans to expand. The strategy must include the business motive, expertise in the industry, past achievements and financial performance, and future goals.
- Preparing the Documentation: The next step involves preparing the paperwork that includes tax filings, financial transactions, and other administrative and legal procedures. While most loan seekers find documentation the most challenging part of a loan application, modern NBFCs keep the documentation process extremely simple and quick. Here is a general list of required documentation:
- Loan Application form
- Identity proof, like Aadhaar Card and PAN card
- Address proof, like Aadhaar Card, voter ID card, passport, driving license, or utility bills
- Financial documents, like PAN Card, ITR, GSTIN, bank statements, profit & loss account, audited balance sheet, or proof of business continuity.
- Proof of business ownership in the applicant’s name or their spouse or parent’s name
- Finalising the Lending Institution: Deciding on the lending institution is the final step to getting a Business Expansion Loan. Check the websites of top lending institutions to find out the eligibility requirements for Business Loans. You can choose a reliable and reputed lending institution like Clix Capital, well-known for its easy application and approval process.
Apply for the Business Expansion Loan Online
For the ease of application and loan approval, you can apply online from your smartphone or laptop. When you apply for a Business Loan online, you save on time spent on several branch visits and lengthy discussions. You can also use a Business Loan Calculator to calculate the EMIs of the loan before applying.
Getting an unsecured Business Loan from an online lending institution is fast and convenient for the applicants. The interest rates are competitive and there is no need for collateral, guarantor, or security.
Unlike equity investors, lending institutions offering unsecured Business Loans do not interfere in business operations and are only concerned about timely EMI payments.
A Business Expansion Loan is ideal when an entrepreneur needs capital to expand their business operations. Additionally, it helps preserve the cash flow during challenging situations and improve financial security in fluctuating market conditions. Briefly put, raising funds through unsecured Business Loans is lucrative for a rising company’s growth and expansion. However, choosing the right lending institution with the best loan offer is ideal for the business’s needs and priorities.
