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Home Running A Business How to Pick the Perfect Second Business Location
When your business is bustling, it may feel like a second location would be the best way to capitalize on that momentum. Perhaps your restaurant often has lines snaking out the door. Or your tax business has identified a prime market in another city. Or your medical practice has more patients than the available space can accommodate.
Scenarios like these certainly indicate that another location might be a solution. Here is a handful of questions you can ask yourself to get a clearer picture of whether or not expansion would be wise:
If you answered yes to 3 or more of these questions, consider your business a prime candidate for expansion. This is a major decision, so due diligence is crucial. Take the time to consider growth alternatives that don’t require you to open another brick-and-mortar.
“For example, you may be able to grow your business by building a website, eliminating the need for considerable funding and the risk associated with opening a physical store,” according to business expansion strategies from Entrepreneur. “For many businesses, the internet offers low-cost access to a national market, with large numbers of potential customers. The viability of the internet marketing medium for your business is a function of your business’s ability to successfully and profitably deliver your products and services outside your existing local market.”
Once you’ve taken the time to survey the situation, you can make your decision. If a new business location is your preferred route, you’ll need to maintain your deliberate approach. This care can be difficult, especially when you feel compelled to leap for a rare opportunity in a new market. But always strive to balance your enthusiasm with caution.
Here are 10 considerations that will aid you in choosing the right location and setting yourself up for success once you move in:
If you dream about expanding your business, you’d better be spending your waking hours figuring out how to fund it. One popular route for entrepreneurs who want to open a second location is a loan from the Small Business Administration (SBA). These financing products come with interest rates and repayment terms similar to those you’d get from the best traditional bank loans.
The SBA is dedicated to helping underserved entrepreneurs, including women and minorities. If you’ve been rejected in the past and feel that you haven’t been given a fair shake, it’s definitely worth checking out the options this agency offers.
Other loans may also help provide funding for expenses related to your expansion. Possible options include term loans, short term loans, equipment financing, business line of credit, or a merchant cash advance.
There’s also a type of loan specifically designed for small business owners looking to expand their operations. Known as a commercial real estate loan (aka a commercial mortgage), it can be used for all manner of projects that might be tied to your business growth. Possible uses include:
Commercial real estate loans usually offer favorable rates and terms. For example, the rates start around 4.25%, and the repayment terms are about 20–25 years. The dollar amounts on these loans start around $250,000 and go all the way up to $5,000,000.
The reason these loans provide such borrower-friendly details largely comes down to collateral. The real estate involved with the loan will be used as collateral, which works wonders on lenders. Knowing their investment in your business is secured by such a tangible and valuable asset, they’ll be more generous and willing to work with you.
“When lenders demand collateral for a secured loan, they are seeking to minimize the risks of extending credit,” explains BizFilings. “In order to ensure that the particular collateral provides appropriate security, the lender will want to match the type of collateral with the loan being made.”
Be aware that in situations where the value of the asset isn’t clear to a lender, they may ask you to provide an alternate form of collateral. This way, they’ll still feel secure in the loan and will be able to proceed with confidence.
In addition to reviewing your collateral, the lender will look at other factors to determine the interest rate and repayment term you might qualify for. Here are some of the most important things they’ll consider:
Don’t assume that a commercial real estate loan is the only way to fund your second business location. You have numerous financing options. The key is to review the relevant financing products and choose the one that gets you the money you need, the timeline you require, and the rate you prefer.
“While there are numerous options from which to choose, not all deliver the same benefits,” explains Tom Coletta, a senior vice president at Axiom Bank. “Make a short list of potential lenders by shopping around to compare offers.”
Many resources are available to help you evaluate loans and make an educated decision. One of the first places to start is a trustworthy loan calculator, which allows you to identify costs in a clear and efficient way.
You also might want to talk to a financial expert who can help you identify desirable loans and watch out for red flags. This can be critical because some lenders use inconsistent terminology or hide fees in their disclosures. These frustrating practices can muddy the water, making it even more beneficial to lean on an experienced guide who can point you in the right direction and prepare you to make a confident decision.
Regardless of whether your second business location is a restaurant, retail store, warehouse, office, or something else entirely, your preparation is key. By taking the time to choose the best location and secure the most favorable funding, you’ll be setting yourself up for a much brighter future.
Grant Olsen is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV, where his articles have generated more than 6 million page views, and has been featured on FitSmallBusiness.com and ModernHealthcare.com. Grant is also the author of the book "Rhino Trouble." He has a B.A. in English from Brigham Young University.
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