Every business goes through different growth stages, and having enough capital to expand your operations at each stage is vital. In this article, we discuss how to finance business expansion, explore the different types of funding to consider and provide actionable insights for UK businesses.

Understanding Business Expansion

In short, business expansion involves growing your company by increasing its market presence, product or service offerings, operational capacity or geographic reach to boost revenue and achieve long-term sustainability.

Whether you want to open additional locations, diversify your offering or venture into new markets, you’ll need adequate funds to fuel your business expansion strategy.

Typical Forms of Business Expansion:

• Market expansion – moving into new markets and regions
• Workforce expansion – increasing staff numbers to boost marketing and sales efforts and encourage growth
• Product development – launching new product lines or expanding service offerings
• Partnerships and strategic alliances – partnering with other companies for mutually beneficial ventures and opportunities
• Mergers and acquisition – buying or merging with other companies to gain customers, technology and talent

Why Financing is Crucial for Business Expansion

Most growing businesses need an injection of capital to make necessary operational changes and meet their expansion objectives.

Gross UK business lending is expected to hit £488 billion in 2024, while SME bank loans reached £59.2 billion in 2023. Although this latter figure is a slight decrease from 2022, it’s the joint third-highest on record.

Getting suitable funding for your business enables you to invest in people, assets and expertise to power your expansion plan. Whether it's a short-term business loan to recruit more employees and secure prime locations or equipment finance to fund new tools and tech, you should carefully judge which financing solution best fits your requirements.

The Trend Towards Alternative Funding

It can be an uphill struggle to finance business expansion due to long application processes, low approval rates and tight lending criteria. That’s why UK businesses are increasingly exploring alternative financing options amid frustrations with traditional banks. 

According to a 2023 FinTech Global report, 70% of UK SMEs stated they wouldn’t have survived the cost of living crisis without alternative financial solutions. These solutions are providing a lifeline and growth opportunity for small businesses, with high street banks’ share of gross lending falling over the last three years, making up 41% in 2023. 

Top Strategies to Finance Business Expansion

You may seek government support, garner the interest of angel investors or source capital via crowdfunding, but your business expansion strategy should align with your goals and ambitions.  

To help you decide how to finance your business expansion, here’s an overview of some common approaches and what they involve:

Small Business Loans

The ease of application and flexible term length of small business loans make them appealing to companies across various sectors. They are a great option to explore if you have a solid credit history and collateral.

iwoca is a leading small business loan provider, offering numerous options to suit different needs. Explore our Flexi-Loan solutions.

Bootstrapping

This method uses personal savings and revenue rather than external funding, focusing on financial discipline and ownership to ensure a sustainable growth model.

Bootstrapping is for businesses with minimal initial capital requirements and low overheads or entrepreneurs seeking full control. 

UK Government Grants and Loans

The UK government’s grants and loans are financial awards to support specific initiatives. As repayments are not required, they appeal to small businesses.

This option suits companies in disadvantaged regions or strategic sectors, like green energy and new technologies.

Venture Capital

Offering an investment in exchange for equity, venture capital firms gather money from various sources to invest in businesses. It involves giving up part of your ownership, certain voting rights and a slice of the profits. The UK is the third-largest VC market in the world.

Venture capital is ideal for companies with high-growth potential and proven business models requiring substantial scaling.  

Angel Investors

These entrepreneurs help companies by investing their personal money. Angel investors typically expect a percentage ownership of your growing business.

Angel investment suits high-growth sectors and start-ups needing seed funding.

Crowdfunding

Once a novel way to source capital for a pipe dream, crowdfunding is now a popular alternative financing solution for entrepreneurs, non-profits and growth-driven SaaS brands. 

It attracts innovative products, creative sectors and community-led ventures. Monzo is one of many fintech success stories.

Types of Business Expansion Loans in the UK

If you want to apply for a loan as part of your business expansion strategy, several business expansion loan options are open to UK companies. Let’s look at the different types and their pros and cons.

Term Loans

Businesses repay term loans over a set period, typically monthly, and can choose between secured or unsecured loan agreements. They’re suited to longer projects where you can confidently meet the monthly repayments.

Pros: 

• Predictable payments
• Builds credit history

Cons:

• Often requires collateral
• May have strict approval criteria, depending on the provider

British Business Bank Loans

The British Business Bank has various loan options for UK businesses, including start-up loans, enterprise finance guarantees and other debt and equity options.

Pros: 

• Favourable terms due to government backing
• Good for SME needs

Cons: 

• Some programs may have stringent eligibility criteria
• Often involves an arduous application process

Equipment Financing

Asset or equipment financing helps to fund key business equipment, such as machinery, vehicles or infrastructure. You use assets as collateral and select from hire and lease options.

Pros:

• Conserves working capital
• Often easier to secure than other finance options

Cons:

• If assets become obsolete, you're still responsible for repayments
• Depreciation risks

Business Lines of Credit

A line of credit is a predetermined sum for businesses to draw from as needed. It’s similar to using a credit card and can be secured or unsecured.

Pros:

• Only pay interest on funds used
• Handy for managing cash flow fluctuation

Cons: 

• Variable interest rates
• Risks of debt accumulation if not managed properly

Merchant Cash Advances

A merchant cash advance is a lump sum in exchange for a cut of future credit card sales. You repay a fixed percentage deduction of transactions across flexible terms.

Pros:

• Repayments adjust with sales volume
• Less stringent approval process

Cons:

• Fees and interest rates are often higher than other options
• Not suitable for businesses with low credit card sales

How to Raise Capital for Business Expansion

Before exploring prospective financing providers, make sure you’re prepared. Follow these key steps in how to raise capital for business expansion:

• Assess your specific financial needs and business areas that require funding.
• Prepare a clear business plan backed by robust strategy, situational analysis and forecasting.
• Thoroughly research lenders and investors and conduct due diligence to judge their suitability.
• Establish how to manage and allocate funds once business expansion financing is secured.

Practical Tips for Managing Business Expansion Finances

Budgeting and Forecasting for Expansion

Effective budgeting and forecasting is the first step in deciding what you have available to spend and where to spend it. With a detailed view, you can create a financial roadmap to allocate resources efficiently, anticipate cash flow needs and identify risks. 

Cash Flow Management During Growth Phases

Effective cash flow management ensures you have enough on hand, helping you meet operational expenses and invest in future expansion. Keeping a healthy cash flow prevents financial shortfalls and helps maintain positive supplier/creditor relationships.

Leveraging Fintech Tools to Increase Efficiency

There are many fintech solutions available to help maximise your expansion’s success. So, use tools that streamline payment processing, improve financial planning and foster efficiency, scalability and competitive advantage.

Finance Business Expansion Plans with iwoca 

At iwoca, we offer a range of alternative funding solutions to companies seeking to finance business expansion. Over 90,000 companies have leveraged our financing solutions, and we’ve lent over £3 billion to power business growth. 

Here are a few reasons to choose our business expansion loans:

• Quick application process – you can apply within minutes online and be approved within 24 hours.
• Flexible loan options – borrow money for as little as a day and up to two years.
• Simple and transparent pricing – no early repayment fees or long-term commitments.

Our handy business loan calculator shows you what you could borrow, for how long and the likely monthly repayments.

Plus, read our customer success stories to see the transformative impact of our financing solutions, and browse our business finance options to see how we can fuel your expansion.