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How to Use Working Capital Loans to Finance Expansions
A working capital loan can be used to help finance an expansion for a business when cash flow is tight including local businesses looking to buy a competitor, investing in a new location in another city, or expanding overseas. This is because working capital loans offer the flexibility to pay for immediate operating expenses including:
- Payroll
- Equipment like computers or servers
- Rent, utilities, and monthly bills
- Uniforms and inventory
- Other short-term operating expenses
If you need to use cash reserves to pay for the expansion, especially when the deal is time sensitive, working capital loans can cover your immediate costs so your cash flow on hand can fund the expansion. Here are a few types of businesses and how they can use working capital loans for their expansions.
Consulting, Fractional Executive, and Contracting Businesses
When you find the perfect partner, a strategist you want to hire full time, or land a client in a new state that requires a local presence, working capital makes growing easy. These types of small business loans can be approved within one to three days depending on the lender you choose, giving you the funds for the new location and team members.
Ways to invest the working capital loan include:
- Leasing an office for the new team member or members
- Paying their salary until the first invoice comes due
- Buying the equipment they’ll need including computers, software, and a vehicle if travel is required
- Decorating the office space including couches, desks, lobby signage, and a conference table
- Using recruiters to find staff for the new location once a client has signed their contract
New Locations for Franchises, Retail Shops, and Restaurants
Buying equipment, new signs for the building, or even the property can eat your cash reserves fast. Not every vendor is going to lease or have a payment plan. This is where a working capital loan can help you launch the next location as you’ll have money coming in once the new location opens to make the payments.
Ways to invest the working capital loan include:
- Hiring and training the staff
- Purchasing displays and less expensive shelving
- Uniforms for the team members if they’re required
- Renovating the building or space if it needs updates
- Stocking inventory
Expanding Overseas
You’ve already researched the market and the legal requirements of growing internationally, and there are going to be immediate expenses that don’t make sense to use your current cash reserves. That is where working capital financing comes in. It is a short-term business loan for the immediate expenses you will pay back quickly.
Ways to invest the working capital loan include:
- Marketing and advertising to build brand awareness or drive sales
- Securing an office or retail location
- Traveling to the new location, plus food and hotel while on the road
- Putting the deposit down for manufacturing, storage, and retail locations
- Placing larger orders for production and inventory to meet demand in the new country
- Paying the lawyers, accountants, and other professionals to assist with the legal work
- Updating software to cover national and international payments, invoicing, and accounts receivable
Working capital is one of the most flexible small business loans for expansions as the loans get approved quickly and are designed to cover immediate expenses and short-term needs. By using it for purchases where a business credit card does not make sense, and where you’ll be turning a profit quickly, you can save or supplement your cash reserves while growing your company’s footprint.
QuickBridge does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal and accounting advisors.
