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May Q&A: Available now
This month, the Making Sense team answers client questions related to trade policy developments and their impacts on key economic issues.
Success builds on success. Once your business is making sales, you may see opportunities to expand even more. But there's a limit to how much you can grow by financing everything only through your revenue. A business expansion loan could be a way to get the money you need to accelerate your commercial growth plan.
While startup loans help launch a brand new company, expansion loans aim to grow a business that's already making sales. Some of the ways you can use funds from an expansion loan include:
In these cases, the loan follows the same structure. You get funds upfront, which you can spend how you see fit. Then you'll need to make regular payments—including interest—to pay off the debt.
When you apply for a commercial loan, you'll need to consider a few factors.
While each lender has its own system for handling applications, the process typically follows some general steps.
The best time to borrow is when your commercial growth strategy has a clear plan for using all the loan funds—whether it's buying new equipment and inventory, hiring new staff, expanding to a new location or anything else that will grow your sales.
Because borrowing has a cost—namely, the interest rate—you need to grow your business enough to justify the expense. Borrow enough to reach your growth plan goals, but not more than this amount. Avoid letting extra loan money sit unused in the bank. If you do, you'll be paying interest for financing you don't need.
As you consider the borrowing terms, make sure your business can safely keep up with the monthly debt payments. Based on your cash flow trends, can you safely cover the loan payments even during downswings?
You could also look at your debt-to-equity ratio, which is the amount of debt divided by the value of your business. A safe ratio is typically below two, though capital-intensive businesses like manufacturing may need to go higher to expand.
For help with this decision, consider meeting with a trusted business banker before applying. They can review your business expansion plans to ensure the financing you set up makes sense for your growth strategy.
This material is for informational purposes only and is not intended to be an offer, specific investment strategy, recommendation or solicitation to purchase or sell any security or insurance product, and should not be construed as legal, tax or accounting advice. Please consult with your legal or tax advisor regarding the particular facts and circumstances of your situation prior to making any financial decision. While we believe that the information presented is from reliable sources, we do not represent, warrant or guarantee that it is accurate or complete.
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