8 ways small businesses can fund expansion 

Life as a business owner is rarely smooth sailing, but the last few years have presented a multitude of extraordinary challenges that have shaken even the most resilient companies.

A combination of Brexit, Covid-19, and the ongoing cost of living crisis – amongst other factors – have made dreams of expansion feel much more daunting, and for many businesses any plans for growth have been put on ice.

However, despite the doom and gloom often portrayed in the media, there are still plenty of avenues for small businesses to consider for securing funding. And with good planning and research, there’s no reason why you can’t pursue your goals for growth.

In this blog, we’ll explore eight key strategies for funding business expansion suitable for small businesses in the UK. Let’s get started.

1. Apply for a business grant

As a UK-based company, the Government offers a wide selection of approved grants that can potentially support your plans to expand.

A business grant is a financial award given to companies by the Government or a government-backed organisation, to support business development and expansion; a cause the Government is keen to promote, especially now as they focus on strengthening the UK economy.

These grants can be used for a variety of purposes, such as research and development, investment in new equipment and technology, marketing, and workforce training.

Though grants are undoubtedly an attractive option for small businesses, they come with both pros and cons.

As mentioned, grants can be particularly beneficial for the economy, helping to upskill employees and provide new jobs. Plus, you won’t need to worry about managing repayments or losing any income, since grants are essentially free money for your business.

On the other hand, the application process can be lengthy and complex, and there is no guarantee that your company will successfully secure funding at the end of it. If you are successful, then it’s likely you will be subject to additional reporting and monitoring, which can be time-consuming and may require extra resources.

Many government grants are targeted toward a specific industry or business activity, so your company will need to carefully check eligibility criteria before applying.

Generally speaking, grants are more of a short-term solution rather than a long-term strategy for growth, so it’s likely you will need to consider an additional supporting strategy to sustain your expansion. Though grants are still a great place to start.

2. Take out a bank loan

Bank loans are still a very popular funding option for ambitious small businesses and startups looking to secure the necessary capital to expand their operations.

Again, they can help to fund things such as new equipment, hiring more staff, expanding marketing efforts or opening up new branches.

They come in a variety of flexible forms that allow a company to choose the terms that are best suited to them. Depending on the lender, your financial history, and the type of loan; they can come with low-interest rates, often making them an affordable solution for small businesses.

If you have a good relationship with your bank and a well-researched business case, this could be a great option for you. It’s recommended that you seek some advice before applying for a loan, to ensure you are likely to be accepted and are able to comfortably manage the repayments involved.

It’s important to also note that your company may need to demonstrate specific credentials to qualify for a business loan. Conducting thorough research beforehand can help you understand these requirements and increase your chances of securing funding.

3. Try for a guaranteed loan

If you have tried the traditional means of lending, such as a bank loan, but have been unsuccessful in your application, then a guaranteed loan could be suited to you.

As the name suggests, you are guaranteed to be approved, regardless of your financial circumstances or credit history. These schemes have been specifically designed to facilitate lending to smaller businesses that are unable to obtain finance due to a lack of security or proven track record.

While guaranteed loan schemes such as the Government’s Enterprise Finance Guarantee can help lower the cost of borrowing and offer flexible repayment terms to small businesses, the eligibility terms are strict and businesses applying will need to meet certain conditions to qualify.

4. Explore debt financing

Perhaps one of the most popular options businesses will consider when looking to fund their expansion is debt financing.

This involves borrowing money from a lender such as a bank, a financial institution or a private investor. The funds are then repaid over a period of time with interest.

Debt financing can be an advantageous option, as it allows company owners to retain full ownership of their business without giving up any equity, like with other forms of financing – which we will explore below.

The interest paid on this type of financing is tax deductible, which can help a business to lower the overall tax burden.

That said, debt financing does of course involve regular repayments plus interest, so it’s absolutely vital that you ensure you will be able to keep on top of these payments to avoid any penalties or additional charges.

Whether or not debt financing is the right option for you as a small business will ultimately depend on your financial circumstances.

5. Consider equity financing

For some small businesses, equity financing can be a good solution for securing capital for your ventures.

This strategy involves selling ownership shares or equity to investors in exchange for funding. Funding can be supplied by a range of investors such as private equity firms, angel investors (which we’ll take a look at in more detail below), or venture capitalists.

This option allows businesses to quickly access significant amounts of capital to fund expansion projects, and unlike debt financing, it does not create a financial burden on the business.

However, this comes at the cost of a partial stake in your company, which means you may have less control in decision-making, which can be frustrating especially if you have specific plans and concepts in mind for your company. That said, equity investors can also bring valuable experience and expertise to the table, which can help small businesses to scale their operations and channel their growth more effectively.

Raising equity financing can be a drawn-out process, as companies will need to pitch to multiple investors before finding the right partner.

6. Reach out to an angel investor

Angel investors are another potential option that may be worth pursuing, particularly if your small business is in its early stages.

An angel investor is typically a high-net-worth individual, often an entrepreneur themselves, who invests their money into a business that they believe to have high growth potential.

Your small business can benefit from an angel investor in a number of ways. Not only can they fund your growth and help develop your company financially, but they can also offer a wealth of experience along with invaluable insights and guidance. Often, they will also have access to an extensive network of industry contacts that could help you connect with prospective customers, suppliers and partners, fuelling growth even further.

There are some drawbacks involved with this option, such as sacrificing a stake in your business and losing some control in exchange for their investment. This can often equate to sharing some of your decision-making responsibilities, which could increase the chance of conflicts relating to how the company is run.

Once again, this can be a time-consuming and challenging process, since you will need to pitch to investors and negotiate your terms.

7. Turn to the public with crowdfunding

Perhaps less conventional than the typical avenues for expansion, crowdfunding can be a highly effective route to raising capital for your growth – and it’s a strategy that’s becoming increasingly popular with independent small businesses.

A crowdfunding initiative allows businesses to raise funds for their expansion through an online platform such as Crowdfunder, Kickstarter, or Indiegogo, to name just a few. These platforms connect small businesses with a large pool of potential investors and local residents interested in supporting innovative and entrepreneurial projects.

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Not only does crowdfunding offer a simple approach to pitching your ideas, but it also bypasses the need for complex financial arrangements. If you have a new innovation or target audience in mind, it can also be a great solution to gauging market demand before going full steam ahead with your ideas.

While crowdfunding can work wonders for brand exposure and publicity, it’s important to recognise that not all initiatives are successful. Crowdfunding has become particularly competitive in recent years, meaning you’ll need a compelling campaign to help you stand out, as well as patience and time on your side, since campaigns can take a while to gain traction.

As such, this method is probably not suited to all projects.

8. Lean on friends and family

If you are in the early stages of your business journey, then it’s not uncommon to turn to close friends and family for financial support, as a means of quickly securing funding.

Depending on your arrangements and the interest you’re willing to pay, this could prove a worthwhile investment on the lender’s part.

This option could be a hassle-free way to get the wheels in motion with a project; and once expansion develops, you can then look to secure funding elsewhere once you have a proven track record.

Of course, mixing business with friends and family could present risks. If things don’t pan out as planned, this could add strain to relationships.

So there you have it…

We’ve covered eight effective strategies small businesses can employ to fund their expansion. Which one is right for you will depend on your specific goals for the future and your current situation. Remember, whichever strategy you pursue, it’s crucial to thoroughly research your options and seek advice before fully committing to your preferred method.

We hope that you’ve found this post useful, and we wish you all the best with your future growth. If you have any questions or would like some advice, please leave us a comment below or contact our team.