Financing a Business Expansion: How Much Should You Borrow?
With your small business experiencing an expansion opportunity with ample demand just waiting to be fulfilled, it is time to consider exactly how much is financially safe to borrow. Read on for the answer.
Congratulations! If you are thinking of borrowing to grow your business it clearly indicates that your business is flourishing and that you have successfully overcome the obstacles that every startup faces, be it developing a loyal customer base or employing a skilful and stable staff that understands and complements your business. More likely, your current demand outstrips supply and therefore you feel the need to financing a business expansion.
Here’s a guide to help you think about what that Business Loan amount should be, and how to go about calculating it to best suit your interests:
Consider the ROI
ROI or the Return in Investment is the first step to understanding how much you should borrow for your business expansion. ROI determines the gain or loss in percentage of the business expansion loan.
When calculating the ROI, keep in mind that net profit is calculated by subtracting the additional expenses, if any, incurred in generating the profit. Keep in mind that the higher ROI, the more beneficial your loan will be for the business. A positive ROI is a clear indication that the business will be able to repay the loan.
Let the Numbers Speak
We understand that you may have started your business based on the strength of the idea and with the money you had saved. This time around, as you consider borrowing to grow your business, you need to base your business expansion loan requirements on hard numbers. Look at the business carefully to understand whether the additional funds will indeed increase the sales. Think of it like this: If a restaurant simply increases the number of tables, that does not necessarily guarantee that the tables will be occupied, and that additional revenue will be generated. You need to calculate how the amount you borrow will help your business revenue to increase over a period of time and whether the additional liability of your Business Loan can be serviced by the increased sales.
Have a Well-Defined Game Plan
Be sure you have a proper game plan when it comes to utilising the borrowed funds, and that your analysis of the current demand is up to the mark. For example, ascertain whether the current surge in demand is not a seasonal or a temporary event. Ensure that this increase in sale of goods or services is anticipated as per your plan and that your business continues to have the dedicated stream of customers, as you take up a Business Loan to help expand. Knowing exactly which sections you will channel your borrowed funds—be it in human resources, procurement, distribution, raw materials, machinery or office space—will also help you in accessing the total Business Loan your business needs for growth.
Whatever your requirement for a small Business Loan is, make sure that you choose the right lender. This will help you reduce your stress when it comes to paying your loan or even during prepayment, should the need to do so arise. Lenders like Bajaj Finserv offer a hassle-free documentation process, various repayment options that are easy on your pocket, easy online application and approval, and online access to your amount without the stress of collateral or guarantors. Since Bajaj Finserv also charges interest not on the whole Business Loan sanctioned, but only the part that is being used by your business, you also save money, which can be fuelled into further expansion of your business.