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Page written by Chris Godfrey. Last reviewed on March 14, 2025. Next review due October 1, 2026.
Expansion loans can help small businesses grow without putting strain on cash flow or selling equity to investors. If your finances are stable and you have a solid plan for growth, an expansion loan may be your best option for investing in the future of your business.
A business expansion loan is a type of commercial financing that helps US businesses grow by providing capital for scaling operations, such as opening a new location, or building in a new production line. These types of loans may have fixed or variable interest rates, with repayment terms as long as 25 years. Business expansion loans may be secured (requiring collateral from the borrower), or unsecured (no collateral required).
No. Although these loans share some features, a business acquisition loan is specifically designed to fund the purchase of an existing business or franchise.
Business expansion loans come in a variety of flavors:
US Small Business Administration (SBA) loans are partially backed by the US government, which means they may come with lower interest rates and fees than many commercial loans.
SBA loans: (Collateral or a personal guarantee may be required).
Term loans are the most popular type of commercial loan. Offered by traditional banks, credit unions and online lenders, these loans are typically used for one-off investments where borrowers know exactly how much cash they need. You receive a single, lump-sum cash injection and then pay it back in regular instalments over a fixed period of up to 25 years. Borrow up to $5 million. Collateral may be required.
Also known as a revolving line of credit, this is a business loan that functions like a high-value credit card but comes with lower interest rates and fees. Borrowers can withdraw as much as they want when they want from a loan facility up to the limit of their borrowing. Collateral may be required.
With equipment financing, you use the asset you’re purchasing (such as plant or machinery) as collateral for the loan. This type of borrowing is ideal for businesses with erratic cash flow or low working capital. Use the asset as you pay for it. Spread the cost over time. The machinery acts as security for the loan. In most cases, no added collateral is required.
Commercial mortgages can be used to buy properties that have a business function, such as factories, offices, stores, restaurants, gas stations, gyms, theatres, sporting venues, etc. Although commercial real estate loans are similar to the residential mortgages used to buy homes, they differ in some key areas:
Differences between commercial and residential real estate loans | ||
---|---|---|
Commercial | Residential | |
Primary borrower | Business entity | Private individual |
Type of property | Commercial property | Private residence |
Loan repayment period | 10 to 25 years | 15 to 35 years |
Maximum loan to value (LTV) | 65% to 85% LTV | 95% LTV |
Interest rates | Higher than residential | Lower than commercial |
Fees | Higher than residential | Lower than commercial |
Pre-payment penalties | Common | Rare |
Minimum FICO score | Usually 600+ | Can be as low as 500 |
Although there are differences between the types of expansion loans available, the basic structure for all business loans remains very much the same:
Expansion loans are available from banks, credit unions, online lenders and some non-profits (business grants). Every lender will have their own loan criteria, which means interest rates and fees can vary significantly. Borrowers are advised to shop around and compare deals before settling on a loan.
Business expansion loans have their advantages and disadvantages:
Eligibility criteria for expansion loans varies by lender. However, common factors that influence qualification include:
Typical documentation requirements include:
Working with business finance experts can make all the difference when applying for an expansion loan. Contact Swoop to discuss your borrowing needs and to compare high-quality business loans from a choice of lenders. Help your business grow without putting strain on cash flow. Register with Swoop today.
Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Wells Fargo Bank, Visa, Experian, Ebay, Flywire, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of US consumer and business finance.
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