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HOW TO FINANCE THE GROWTH OF A BUSINESS?

SME Finance

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Posted on
May 25, 2017

HOW TO FINANCE THE GROWTH OF A BUSINESS?

Evolution is the process of constant branching and expansion” – Stephen Jay Gould

Expansion is the next step of a successfully run business. However, the means to achieve it may not always be an easy path. However, any driven business owner must be relentless in their pursuit of business expansion. For a business to be taken to the next level, finance is an inevitable requisite. Funding is required every step of the way right from the introduction of new products and services, to hiring new help or for the purchase of new equipment.

For an existing business funding for growth will be relatively easier than start-up financing. This is because of their existing history of a successful model. As to where one can obtain this funding depends on the following factors:
• Business Goals
• Ownership of the business
• Health of the business
• Ability to plan
• Ability to convince lenders to believe in the vision one has for their business

One the business plan is in place, knowing what type of financing is available to a business owner is important. New capital can be raised in multiple ways such as:

1. Bootstrapping

This is a method of finding the resources within one’s company to come up with additional funding. It can range from cost cutting to reinvesting profits into the business to fund its growth, instead of using borrowed funds. Additional revenue streams like renting of the unused business facility to generate funds or allowing other companies to advertise on the business’ website will also help create additional funds for a business. Bootstrapping could also involve repositioning of a company’s products to a newer market to increase sales. The main USP of this means of financing involves more equity and lower debt. This helps clean a balance sheet and makes it eligible to raise more capital in the future should a business need it.

2. Tapping into Personal sources

An SME owner can use his personal savings, credit cards, or take a personal loan to fund his business. He can even ask friends and family for funds for either a stake in the company or can borrow funds from them with a repayment schedule set up.

3. Applying for commercial loans

If a business is a well-established one, commercial loans can be obtained at a bank as well if the paperwork, balance sheet and credit history of the company is sound and in place. With a well-planned business model and a strategy for repayment, a bank will be willing to give out a loan. However, for small business owners, without proper documentation in place, obtaining funds from a bank can be a tedious and laborious process. For this reason, they can obtain working capital loans or collateral-free business loans from a digital platform in a hassle free and efficient manner within a short span of time.

These online lending platforms solve the problem of expansion financing for an SME by giving them access to flexible and adequate funding at transparent financial charges. The paperwork is minimal and the disbursement is prompt with borrower’s background and business model analyzed using data analytics. Small business loans can then be customized to meet the working capital needs or the equipment financing need of a smaller or medium sized enterprise. For eg. An online Kurti seller retailing on an Ecommerce platform can get strapped for cash thereby restricting his capital for creating a new collection. In that scenario, he cannot move to traditional financing due to inadequate financial history or due to the lack of a collateral. Here an online lending platform can be a savior as it can provide the business with collateral-free loans in an effortless manner helping his business to sustain and grow.
Thus using any of these methods a business can reach its potential of serving a large number of people with a great product.