Business owners are always looking to grow. At one time the aggressive owner wants more and needs to increase his revenue and expand. Business expansion loans are the fuel that allows the dream of growth to come true. There are several outlets for expansion including alternative lending sources, traditional banks, and credit unions.
Business expansion loans from banks and credit unions will require some sort of collateral. It will have to be significant and may include your primary residence…which becomes a risk to the business owner. In addition, there will be significant paper work involved including producing tax returns, P/L statements, corporate documents, and the list goes on. The timing will be from 30 to 90 days to receive any sort of financing. You will also need a strong FICO score otherwise do not expect any financing.
Factoring of receivables is another option for business expansion loans. This is intrusive in that your customers will be contacted and your A/R department will be taken over. All incoming monies will go straight to the factoring company. They will take their portion of money and then send the rest to you. This is a viable option if you do have large receivables and if you can get past the “embarrassment.” The rates are much more than that of traditional bank rates and the terms are a lot shorter.
Business expansion loans from alternative lenders have pros and cons. The cons are the cost of credit and the short terms. Usual rates are between 15 and 50% and terms as short as 3 months to 18 months. The pros are that these alternative lenders do not require good credit, can approve you in 24 hours, can fund you in days, do not require too much documentation, and are willing to re-advance once half the money is repaid. They develop a very close relationship with the business owner and are often the first ones there for them when capital is needed in the future.
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