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Is Expanding Businesses With Loans A Good Approach

by  | Corporate
Posted:     Updated: May 29, 2017  11:21 ET
 
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Answered a question from Quora

A loan will allow you to expand your business faster then having your business “bootstrap” the expansion (finance the infrastructure required to increase marketing, production and sales).

To come to the best solution for you, you will have to get out your paper, pencil and calculator and do the “cost accounting”. What is the cost to your business in equipment, inventory, overtime for employees or new employees, marketing, etc.

Now figure the gross income and net income from the increased sales.

Now figure out how much of a loan you will need to “gear up” your business.

Now do the research to find out the best loan for this expansion and what the loan will cost you per month in payments.

Now subtract net income from the loan payments. If there is a profit, then the other question (which is the eight hundred pound guerrilla in the room) what is the timing for you to pull this trigger (obtaining the loan for the expansion).

This is the way to go about coming to a decision on a loan vs. bootstrapping.

And, remember, you should be keeping your expenses lien (as well as your income) so you have the choice to do some of the expansion by bootstrapping and some with a loan.

My personal opinion is to build cash reserves so you can self fund (bootstrap) until you are able to project or are experiencing a future of sustained growth, then go the loan route.

Topics: Commercial business development | Commercial lending
More by: Continental Finance Capital Corporation

 

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Is Expanding Businesses With Loans A Good Approach

by Continental Finance Capital Corporation | Corporate
Posted: May 29, 2017  11:19 ET    Updated: May 29, 2017  11:21 ET

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