3 Ways To Finance Business Growth
The university recently hired Johnson Consulting of Chicago to conduct a feasibility study on expanding Papa John’s Cardinal Stadium. The firm will not only determine potential costs of further expansion, but also whether the project will ultimately pay for itself as the Cardinals transition to big conference football in the ACC in 2014. Upgrades were already made during the 2009-10 season, which boosted the stadium’s capacity from 42,000 to over 55,000 seats. But those renovations came with a hefty $72 million price tag, according to Louisville Business First. Many would argue the outlay was worth it as the school has experienced unprecedented success on the football field ever since.
University athletic departments make millions of dollars for appearances in bowl games and the NCAA Basketball Tournament. Most other businesses have to get creative when coming up with ways to fund potential expansion, particularly when a spike in customers is expected. Small businesses owners can consider these options for funding:
Peer-to-Peer (P2P) Lending
P2P lending, also known as social lending, is a method of financing business and other endeavors that cuts out the middle man (bank). Investors essentially offer capital to P2P firms to lend out, which they subsequently earn interest on.
P2P lending allows one individual or private company to extend a loan to another based on its own risk assessment. P2P lending accounted for $3.5 billion in total outstanding loans at the end of last year, according to a report by New York-based Fitch Ratings. That is up from $1.2 billion in 2012.
Prosper and Lending Club are the two largest P2P lending firms in America. Despite the loans technically being administered by a third-party, interest rates and terms are typically determined by your credit score and the amount of the loan. Borrowers will need a FICO score of at least 660 and a 25 percent or lower debt-to-income ratio to qualify.
Funding Circle, RateSetter, and Zopa are some other P2P options to research and consider.
Crowdfunding
The 2013CF Crowdfunding Industry Reports by Massolution estimated the total dollars raised from crowdfunding campaigns in 2013 was over $5.1 billion. That is up from $2.7 billion the previous year.
Some of the most successful new companies only exist because of crowdfunding. The Pebble E-Paper smartwatch raised more than $10 million in 37 days, while open-source gaming startup Ouya raised $8.5 million in less than a month. But the key to these successful crowdfunding campaigns is offering customers incentives that make them want to contribute. The two aforementioned companies offered donors the opportunity to own the final product before it was released to the general public.
Offer donors exclusive discounts on products and services that will come from your business expansion. A landscaping firm can offer a free lawn mowing with a contribution, while restaurants can give free dinners or VIP passes for special occasions. Of course utilize your social media channels to disseminate your crowdfunding campaign and get as many donors as possible.
Old Fashioned Boot Strapping
One of the most creative and rewarding ways to fund business expansion is boot strapping. The challenge comes from creating liquid capital from your own assets, along with finding loyal employees willing to work off the clock knowing they will be rewarded once the fruits of expansion start trickling in.
Take a personal inventory of all your assets. Check out the J.G. Wentworth Facebook page for advice on liquidating future annuity payments for a lump sum of cash. Make a withdrawal from your 401(k) or IRA to fund expansion if necessary. Consider affiliate partnerships with other companies who have a customer base similar to yours. Simply pay them a percentage of all sales they bring you; sales you otherwise never would have had.
Expansion is an inevitable part of all successful businesses that desire to take that next step. The necessary funds will come to anyone with the ambition and desire to succeed.
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