Business Expansion Loans

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Business Expansion Loans
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How to Finance a Business Expansion

All businesses aim to grow - they want to have more employees, more clients, more revenue. While this growth often happens naturally, it can become a chicken and egg situation: a business can’t serve more customers without a bigger team, but they can’t afford to take on a bigger team until they have more clients. In many cases, the solution is a business expansion loan.

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What is business expansion?

Business expansion is another term for business growth, though more specifically, it refers to a business’s decision to seek out new opportunities to generate more revenue and profit. While growth can happen naturally, expansion is an intentional decision.

What is a business expansion loan?

A business expansion loan is a loan you take out to fund business expansion. For example, you may need additional funds to develop a new product or service, or invest in new software or equipment so you can outshine the competition. When you take out a loan and plan to use it to turn it into more profit, it can be considered a business expansion loan.

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Funding Circle

Funding Circle

Funding: Borrow $25,000 to $200,000
Minimum Credit Score: 700
APR: 4.99% to 18.99%
Loan term: 6-12 months
Funding turnaround: 24-48 hours

Funding Circle offers affordable business loans with interest rates lower than alternative lenders with monthly repayment schedules for borrowers with good to excellent credit scores.

Credibility Capital

Credibility Capital

Funding: Borrow up to $500,000
Minimum Credit Score: 650
Best For: Term loans
Estimated APR: 6.99-24.99%
Funding turnaround: Varies.

With Credibility Capital, borrowers with strong credit can obtain small business loans with attractive rates. A personal guarantee along with a business lien and revenue may be required to qualify. Note: This lender provides funding for all states except for North Dakota, Nevada, South Dakota, Vermont.

SBA 7a

SBA 7(a) loan

Funding: Borrow up to $5,000,000
Minimum Credit Score: 650
Best For: SBA loans
Estimated APR: 5.50-8.00%
Funding turnaround: Varies.

The SBA 7(a) program features lenders such as Wells Fargo in their network and provides capped interest rates and long repayment term flexibility. Term loans and lines of credit access available. Typically, collateral will be required with a personal guarantee. Funding times vary and may be longer than most other lenders.

FundBox Business Loans

Fundbox

Funding: Borrow $2,500 - $150,000
Minimum Credit Score: 600
APR: 10.10-79.80%
Loan term: 12-24 months
Funding turnaround: as fast as next business day

Fundbox requires minimal documentation and access to a revolving line of credit without origination or maintenance fees. Borrowers are not required to have collateral (with exception of larger credit lines which are subject to a personal guarantee).

How does a business expansion loan work?

When you decide to take out a loan for business expansion, you’ll first decide on the type of funding you want to apply for and then compare rates to find the most affordable option. Once you’ve applied and been accepted, the loan is usually deposited directly into your account in one lump sum. You can then use that money to fund your business expansion, paying back the loan over the following weeks, months, or years with a regular payment.

What can I use a business expansion loan for?

There really are no restrictions on how you can use a business expansion loan. However, here are some of the most popular uses for a business expansion loan:

  • Invest in commercial real estate – either buying a new property or improving or expanding your existing property
  • Expand your services to a new location or expand to serve a new market
  • Acquire another business or buy out a competitor
  • Invest in costly equipment or software that will allow you to offer another service or product
  • Fund new team members so you can increase how many customers you can serve at one time
  • Bring outsourced services in-house

Why is expansion good for businesses?

Expansion is good for businesses because it means they’re getting bigger – serving a bigger market, offering a greater range of services or products, serving more customers, and ultimately turning over more revenue and generating a bigger profit.

What are the benefits of business expansion loans?

Business expansion loans can benefit your business by:

  • Giving you funds to invest in product development
  • Helping you preserve your working capital as you expand
  • You can put more money into marketing or advertising
  • Help speed up your expansion
  • Allow you to take advantage of opportunities

What are the different types of business expansion loans?

  • SBA loans: SBA Loans are offered through lending companies but guaranteed by the SBA (Small Business Administration). This means that, if you default on your loan, the government will repay the lender for the money you are unable to pay. The SBA has set maximum interest rates for these loans, and so they typically have the lowest interest rates available. While these loans are typically the most affordable, they take months to get, so aren’t a good option if you need to move quickly on an opportunity.
  • Business term loans: Term loans are the traditional type of loan, where you apply to a lender and they agree to offer you an amount as a lump sum. This is then paid back in the months or years following, usually with a set monthly repayment.
  • Business lines of credit: A line of credit is where a lender agrees to lend you a maximum amount and then you can borrow from that amount as and when you need to. This means you only have to pay interest on the money you use, rather than the entire loan amount. In many cases, they work like a credit card where you can reuse the credit you pay back, but some close once you use the entire line of credit amount.
  • Merchant cash advance: this type of loan is for those who do the majority of their trading via card payments, as it depends on the proof of your revenue. This is where your card payment processor agrees to lend you a lump sum which you then pay back as a percentage of each transaction.
  • Equipment loans: If your expansion plans are focused on purchasing new equipment, an equipment loan may be the right choice for you. This is where the cost of the loan is secured against the equipment, so you can often find lower interest rates than an unsecured loan.
  • Commercial real estate loans: If you’re looking to buy real estate or improve real estate you already own, a commercial real estate loan (essentially a mortgage) will likely be the best option for you.

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How to develop a business expansion plan

If you’re looking to borrow money for your business expansion, you should develop a business expansion plan so you are not only absolutely clear on your next steps and  how you’ll spend your loan, but so you can share it with a potential lender to show them what your plans are. If you need help writing your business growth plan, you can find it here.

5 tips for raising capital for business expansion

Using a business expansion loan isn’t the only way to raise capital, though it is one of the most straightforward. If you need to borrow more or worry that you may find it difficult to get a traditional loan, here are some tips to help:

  1. Bootstrap – every business is best borrowing as little money as possible, so work hard to make the most of the money you have. Mike Michalowicz talks about this concept in the Toilet Paper Entrepreneur, so that’s a good resource to turn to if you are going to be working with a limited budget.
  2. Try Crowdfunding – crowdfunding is a good option if you have a strong fanbase of potential customers who are eager to have your next product.
  3. Try Peer-to-Peer Lending – this is essentially a loan funded by small investors. You set up a campaign and ask investors to fund your loan. You’ll pay it back like a traditional loan.
  4. Try to Find an Angel Investor – Angel investors aren’t right for every business, since they typically want to not only have equity in the company, but they typically want to be in the driver’s seat, too. If you’re looking for an experienced guiding hand, however, this may be the best choice for you. Venture capitalists work similarly, so that’s another option.
  5. Government Grants – don’t assume you aren’t eligible for government grants, especially if your business has a strong place within your local community. Do your research and check you aren’t overlooking “free” money.

Is a business expansion loan right for my business?

If you’re sure you can’t fund your business expansion activities from within the business or will find it detrimental to do so, then a business expansion loan is likely the right choice for you. Make sure you have a strong plan for the money and have a realistic and accurate idea of the costs of your expansion so you can move forward with your loan application confidently.

How to finance business expansion

If you’re thinking of financing your business expansion, you first need to get a clear picture of where your business is financially. Update your financial documents, understand how much working capital you have, and look into your credit score.

Once you know you’re in good shape to get a loan, decide what type of loan you want to get and start comparing rates. Make sure you try to get the lowest rate you can, as this will make your loan more affordable and business expansion ultimately more profitable.

Start comparing rates here, and when you find one that’s the right fit for your business, gather the appropriate documentation and apply. This next step may be the one that helps you take your business to the next level in profitability.

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