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Six ways micro businesses can fund an expansion

Guest Post by Mark James, in-house writer at Crunch Accounting.

With economic indicators illustrating that growth is gradually returning, expansion is has increasingly become a prospect for businesses across the board.

New opportunities are opening up as purse strings are collectively unfastened and for micro businesses chasing growth, expansion is becoming an attainable option.

Key to this is cash (and normally lots of it). Although, with expansion comes a strain on your finances as you build and develop your business. To fuel your growth, you’ll often need capital – which comes in array of forms. So if you’re eyeing expansion for your micro business here’s six ways to raise the funds:

Do a little debt financing
Debt might sound like a dirty word post credit-crunch, but it’s the way many start-ups and small businesses fund their business expansions. Banks and the like do offer loans – but at a price.

You’ll often need to provide collateral and pay interest on whatever loans you take out, but for that, you won’t face losing equity or control over your business’s destiny. It’s because of this, alongside its accessibility, that debt financing remains so popular.

Dollar Bill Graph

Get to grips with government grants
In the United States, there’s an assortment of grants available to the burgeoning micro business. Grants.gov offers a useful online platform where you can seek out what’s available.

Essentially ‘free’ money (lacking the ties of interest and collateral), a government grant can be excellent for leverage providing a wealth of future capital. As such, they’re often highly difficult to get hold of with a mass of businesses after them. Elsewhere, how you use your funds can be strictly defined. Something which may not be suitable for some.

Reach out to the Venture Capitalists
If the banks don’t see your potential, and the grants aren’t forthcoming, bringing in venture capitalists can ease your funding struggle.

Institutional investors offering expertise and big money they’ll take a stake in your burgeoning business and will want some managerial sway. For this, you’ll get big funds to expand your business rapidly, but be prepared to accept that you’ll lose a degree of control.

Or, bring in a Business Angel
Whereas Venture Capitalists often come in groups, Business Angels tend to be wealthy individuals, offering up their own cash.

As such, they tend to be more cautious with their money, investing prudently. In their sights tend to be the smaller companies still within their infancy. So for the burgeoning micro business, angel funding is probably more securable than funding from venture capitalists (for now at least).

Consider crowdfunding
A relatively new phenomenon – especially in the US – crowdfunding offers the opportunity to gain huge sums of money… but again, while losing equity.

With crowdfunding, rather than calling upon the wealth of a few wealthy individuals (like VC’s or Business Angels), you’ll be drawing upon an array of smaller investments from an abundance of individuals – all via an Internet platform.

Equity-based crowdfunding has taken root in the UK, but with Obama’s recent law change still keeping things strict, you may want to wait a while before it take roots in the US.

Bootstrap
None of the above options appeal to you? Well there is still a way to expand your business without loading it with debt or divulging precious equity – bootstrapping.

Using personal finances or the operating revenues of your company, it’s possible to expand without any external funding. This self-sufficiency means that you’ll maintain complete control, but you’ll need to boast considerable revenues to fuel any sustained period of expansion.

Each way of funding comes with its associated benefits and drawbacks, so take the time to weigh these options when you’re eyeing a period of expansion. Remember, there’s no right or wrong funding option – each micro business is different and what suits one business, might not suit another.

About Mark James
Mark James is part of the writing team at Crunch Accounting, a UK-based online accountancy firm who work with freelancers, contractors and small businesses. He specialises in Business and Finance and is a keen soccer fan outside of work (he’s English…).