Written by: Guest | Best Company Editorial Team
Last Updated: July 30th, 2020
Guest Post by Rebecca Lake
Running a small business doesn't necessarily mean staying small. At some point, you might decide you're ready to grow and scale your business up to the next level. According to Accounting Today's 2018 Small Business Accounting Insights Survey, 70 percent of small business owners expect their profits to increase in 2019.
There's just one thing you might need to see those plans through: a reliable source of capital.
When working capital isn't readily available, or you'd rather keep your cash reserves intact, getting a loan could be the next best option for your business. Using a loan to power growth allows you to maintain control of your business since you're not sacrificing any equity. And with so many loan options to choose from — including bank loans, Small Business Administration loans, and business loans from alternative online lenders — you can find one that fits your needs and cash flow precisely.
If you need some inspiration for how to use a loan to expand your business, here are four ways you can put one to work:
1. Update or buy new equipment
Equipment might be an integral part of your business. For example, if you own a construction company, you may rely on heavy machinery such as backhoes or front-end loaders to get the job done. Or, you might use computers and other office equipment to keep your tech startup humming along.
Making upgrades or additions to your equipment inventory can help with your expansion plans if it allows you to serve your clients or customers more efficiently or grow your customer base. The downside? Buying or leasing equipment can be expensive.
Taking out a loan to cover the cost means you don't have to make a dent in your cash savings. Another plus of equipment financing is that you may be able to use the equipment itself as collateral, rather than pledging business or personal assets. And having up-to-date equipment can give you a competitive edge within your industry or niche.
2. Increase your marketing reach
A solid marketing strategy can be critical to your business success. Your marketing campaign should be designed to target your ideal clients or customers while producing a maximum return on investment, in terms of increasing revenues and profits.
Opening up the scope of your marketing plan, or revamping it altogether, could encourage business growth if doing so enables you to connect with a wider audience. For example, you may have concentrated marketing on just one or two channels, such as social media or email. Launching a full-scale promotion that includes a combination of digital, radio, print, and television ads could substantially increase your business's visibility.
A loan might allow you to plan a larger budget for marketing than you would if you were drawing the funds from your everyday cash flow. You could also use a loan to hire a team to handle the nuts and bolts of marketing and promotion for you if you'd rather direct your time and energy toward a different growth effort. For example, a web designer could update your website, and a social media manager could oversee your social campaigns while you work on developing a new product.
3. Expand your business offerings
Adding new products to the mix can attract new customers if those products are highly sought after or you're one of only a few businesses offering them. New products may be ones you develop yourself or existing products you purchase from a supplier. In either case, a loan can help meet those needs.
For instance, you could use a loan to cover the costs of researching and developing a new product line from start to finish, including purchasing materials, producing your initial prototype, and paying manufacturing costs. If you're purchasing completed products to sell, a loan makes it easier to buy in bulk so you have sufficient inventory to meet customer demand.
A loan could also come into play if you're operating a service-based business. If you own a hair salon, for example, you may want to move beyond cutting and styling and broaden your services to include facials, brow waxing, manicures, pedicures, or massages.
With a business loan, you could cover the initial costs of hiring and training new staff to handle those services, purchasing any necessary equipment, and advertising your newly expanded service line.
4. Upgrade your business premises
One final way to use a loan to expand your business involves where you do business.
Upgrading your business premises, either by making structural improvements or opening up a new location, can pay dividends in terms of growth. If you own a restaurant, for example, updating the interior or launching a second pop-up location can bring fresh attention to your business and draw new customers.
Renovating your premises can also benefit your business if it leads to increased productivity among your employees. Remodeling your employee workplace so that it's more comfortable or has a better flow could make it more conducive to keeping your team focused and on task. The payoff to you is a business that runs more smoothly, with less time (and hopefully, less money) wasted.
Match the loan type to your business expansion plans
These examples are just some of the ways you could use a loan to expand your business; the possibilities are virtually limitless. Your needs or growth goals may be different, and that's important to keep in mind as you compare small business loan options. A working capital loan, for instance, may be better for short-term needs while a term loan could be a better fit if you're making a large-scale growth investment.
As you consider which type of business loan is best, check the fees, interest rates, and repayment terms carefully. Ideally, the loan you choose to expand your business should fit not only your vision but your budget as well.
Rebecca Lake is a financial journalist covering small business, investing, and personal finance. Her work has appeared online at U.S. News and World Report, Investopedia, and The Balance. She also works with top banking and insurance brands, including Citibank, Ally, Discover Bank, and AIG.