How to expand your business using other people’s money

Finding capital to expand your growing business is a major challenge for many entrepreneurs. Many business owners fund expansion using their own money – either by selling a piece of real estate, borrowing, or reinvesting earnings.

However, if the market opportunity is large or you want to expedite expansion, you may require more money than you can supply.

The alternative is to borrow “other people’s money.” It could be as simple as presenting a business plan to friends and family or a bank, specifying how much money you require, negotiating an interest rate and creating a repayment timeline.

You may have to provide collateral, such as your home, property, or a certificate of deposit, and agree to frequent reports describing your progress and use of funds, depending on your credit history, the size of the loan and how well the individual or bank knows you.

You have a decent chance of getting a loan if you have a good reputation, collateral, a great business plan and appear able to pay back the interest and loan.

Here are a few additional ideas on how to use other people’s money to fund your business expansion:

Appy for business grants

Since you won’t be required to pay the money back, grants are a great way to finance your business without having to reach into your own pockets. They also don’t require you to provide collateral.  All you have to do is show that you possess the qualities that are critical to the company’s success.

Some grants are specific to a particular business or sector. For example, you may find grants that are gender-specific, targeted for minority-owned businesses, or for businesses in the manufacturing sector.

Grants are sometimes available to help with staff hiring, training, product development, technological commercialisation, facility renovations, or export facilitation and can be driven by both private and public entities.

How do you find business grants? By networking with the right people, following relevant social media accounts and seeking grant opportunities online.

Use vendor financing

Vendor financing is a funding arrangement in which a vendor either directly or indirectly supports a client in obtaining money. The customer then proceeds to purchase the goods or services of the specified vendor with the help of the aforementioned capital. Vendor financing is also known as supplier finance or trade credit.

Vendor finance is typically considered a deferred credit. Customers who choose this financing option do not have to pay for the products immediately and can do so after sale with the profits generated.

Typically, vendor financing loans come with hefty interest rates, and you may also be required to put up collateral. However, if you have built goodwill with the vendor in question, they may offer to finance against an agreement and charge interest.

Trade credit can come in handy to keep your production process going and can be useful for a business that doesn’t qualify for more traditional business loans.

Try crowdfunding

How about asking strangers to donate to your business? Crowdfunding allows small businesses to tap into the power of the internet to raise money for their businesses. It not only allows entrepreneurs to fund a fledgling business idea at a low cost but also aids in the promotion of a company’s product or service on social media and the development of a loyal customer base.

All you have to do is create a profile on a crowdfunding platform, set a funding goal, publish your request and share it widely.

Interested people can then donate money to your cause – either in exchange for equity or rewards, or for free. However, crowdfunding is commonly used to start businesses, not to sustain or help them expand.

Approach venture capitalists

Venture capitalists invest their money into your business in exchange for equity. Business owners usually go to venture capitalists either at the seed funding or growth funding stages. Since you will have to part with precious business equity, think carefully before you approach venture capitalists for funding. You may lose control of your business if you give away too much equity.

That said, venture capital is a great way to raise large amounts of capital quickly. Venture capitalists are usually experienced entrepreneurs themselves and will provide valuable mentorship and advice. Since they have a stake in your business, they also go the extra mile to connect you with the right people to help you succeed in business.

Go for a merger

Merging with another company or selling a portion of it to a larger firm is another strategy to fund growth. A larger firm will have more resources, such as money, people, systems, marketing reach, and consumers, that allows a smaller company to grow faster and with fewer growing pains.

Merging enables your company to benefit from economies of scale such as increased access to capital, lower costs of production, and better bargaining power with distributors. It also diversifies risk, increases market share and may also bring tax benefits.

However, the wrong merger can essentially kill the uniqueness of your brand. Think and analyse carefully before signing the dotted line on a merger.