Borrowing for a business expansion

The time has come to expand and scale your business. When it comes to accessing the finance to do so, what are your borrowing options?

Across Ireland businesses that can do so are exiting survival mode and are actively looking to grow and scale as the economy reopens.

Funding the expansion of a business can be done in a number of ways including debt funding, venture funding and through various grants.

You have the ambition and the expertise. But can it be done?

Identify strengths and weaknesses

Before you begin looking at ways to fund your expansion, identify your strengths and weaknesses

  • Conduct a SWOT (strengths, weaknesses, opportunities and threats) analysis on yourself
  • Ensure the expansion plan caters to your strengths
  • Define what success looks like for you
  • Do your research

Write a strong business plan

Before you begin applying for finance, articulate the opportunity for potential lenders by writing a really strong business plan.

A good business plan should be time-specific and so clear that you and your colleagues/co-founders should reference it constantly. For lenders and potential investors, the plan should outline how you are going to make a profit and when you will see this profit.

A good business plan needs to do the following:

  • Describe what you intend to do simply and clearly
  • Explain the problem you are planning to solve for the customer 
  • Demonstrate how well you articulate the “value proposition”
  • Identify the market segment you plan to operate in 
  • Explain how you plan to get your product to market (“the route to market”)
  • Elaborate on your business model
  • Show you have a good understanding of the competitive landscape

Seeking finance

Now that you have done your analysis and articulated your proposition/expansion idea, you should be ready to reach out to potential lenders.

A business loan will help you get your business idea off the ground.

To borrow from a bank is a form of debt finance. The golden rule is to match the type of finance (short term-or long-term) to the intended business need.

Short term finance: Includes overdrafts, invoice discounting and business credit cards.

Long-term finance: Includes asset finance, term loans and finance under the Credit Guarantee Scheme if your business has been impacted by the Covid-19 pandemic.

Typically, depending on the loan amount sought, banks may require:

  • Up-to-date financial and management accounts (typically the last six months)
  • Debtor profile/listings
  • Cash flow projections
  • Confirmation of tax status
  • Personal statement of affairs, covering the financial position of the owner
  • Other information relevant to the particular application

When applying for a bank loan, ask yourself:

  • Have you demonstrated the business’s repayment capacity, or its ability to meet the terms of the loan, both now, and over the intended life of the loan?
  • Have you outlined possible stress scenarios (assuming, for example, that revenues grew by 15pc less per year than assumed by the business projections) that show how the business would fare under different assumptions?
  • What security are you prepared to offer? Security, which is only viewed as a back-up for a bank, offsets the level of risk a bank is prepared to take, but it will be relied on if the business is unable to make its repayments.

Loan schemes

In response to events beyond the control of businesses, including Brexit and the Covid-19 pandemic, the Irish Government along with the various financial institutions developed a number of loan schemes designed to help business owners grow and act upon opportunities.

These include:

  • Brexit Impact Loan Scheme: Ireland’s forthcoming Brexit Impact Loan Scheme aims to provide affordable financing to Brexit-impacted Irish businesses. The scheme will be delivered by the Strategic Banking Corporation of Ireland (SBCI) through commercial lenders, including Bank of Ireland. The fund will make up to €330m available to eligible businesses with up to 499 employees. The loans range from €25,000 up to €1.5m and each loan can range from one to six years in duration. Loans will be for terms of one to six years with a discounted interest rate, and loans of up to €500,000 will be available unsecured. Businesses need to apply to SBCI for an eligibility code prior to submitting their application to a lender. Loans can be for working capital or for investment/expansion.
  • Covid-19 Credit Guarantee Scheme: The Covid-19 Credit Guarantee Scheme will facilitate up to €2bn in lending to eligible businesses whose turnover/profitability has been impacted by the pandemic. The Scheme offers a partial Government guarantee (80pc) to participating finance providers against losses on qualifying finance agreements to eligible SMEs, small Mid-Caps and primary producers. Loans under the Scheme range from €10,000 to €1m, for terms of up to five-and-a-half years. Financing will be offered through a range of products, including term loans and working capital loans. Loans of up to €250,000 under the Scheme are available unsecured (except where this is a requirement of the product feature, as in the case of asset finance, invoice discount facilities, etc). Loans can be for working capital or for investment/expansion.

Other useful supports and routes available to businesses considering expansion include such grants as:

  • Covid 19 Business Financial Planning Grant (€5,000): The Covid-19 Business Financial Planning grant will provide a strategic intervention for companies to work with third party consultants to prepare a detailed financial and business plan with forecasts and assumptions. It provides grant support to companies of up to €5,000 (100pc of expenditure) for an engagement with an approved external consultant.
  • Feasibility Study (€15,000): The feasibility study is designed to help with researching market demand for a product or service. The maximum grant available is 50 per cent of the costs up to a maximum of €15,000. You don’t need to have a company to be eligible for this.
  • Innovation Vouchers (€5,000): This voucher was developer to establish greater links between the business community and knowledge providers i.e. universities. The voucher allows companies to test a potential business opportunity. The voucher can be redeemed at registered knowledge providers. You must have a limited company in order to qualify for the funding.
  • Trading Online Voucher Scheme (€2,500): The Trading Online Voucher Scheme run by the Local Enterprise Offices offers funding of €2,500 to businesses of up to 10 employees. Funding can be used towards adding payment facilities or booking systems to your website or developing new apps for your customers. The voucher can also be used towards subscriptions to low cost online retail platform solutions, to help companies quickly establish a retailing presence online.

Lending criteria, terms and conditions apply. Over 18’s only.  (As we mention in the article around security required, I’m wondering should we include the full security t’s and c’s here) Level of security required and rate applicable, will be determined by the amount, purpose & term of facility, in conjunction with the nature and value of the security being offered.

Bank of Ireland is regulated by the Central Bank of Ireland.

John Kennedy
Award-winning editor John Kennedy is one of Ireland's most experienced business and technology journalists.