Many businesses in the post-Brexit economy hope to expand beyond our borders, to take advantage of the many benefits international operations can offer. And while this is not as simple as it used to be, it can still be a viable and profitable route to growth – if you have the capital to back it up.
Why Extra Capital Matters
Basically any form of business expansion requires cash, and international expansion is no different. If anything, it is even more imperative, because there are so many potential obstacles and unknowns when starting out in a new country. And using existing business profits, savings or assets to fund an expansion is usually considered unwise; why risk your current business operations, when you can access business funding that will allow you to be nimble, flexible, and efficient, all while safeguarding your existing platform. External funding can allow you to weather uncertainty and emergencies, jump on opportunities, and move much more quickly than using existing business revenues. All of this will, in turn, expedite your transition to profitability in your new location.
Where to Raise Capital
As we’ve discussed before in this blog, there are many different types of business financing, all with their own pros and cons. What’s interesting about international expansion is that the way in which you intend to expand, and where, will affect what type of financing will make the most sense.
This is because every territory has their own laws around business registration, set-up, domestic financing, and financial security. Most countries do not allow foreign entities to establish a local presence and then immediately obtain a loan within that country. This puts the onus on businesses to obtain capital from their base country, in order to fund their expansion into another. However, some UK lenders have caveats on their loans that state funds cannot be used to fund business activities in another legal jurisdiction (because if there is a default on the loan, the lender may have limited legal recourse for recouping funds/assets held outside the UK).
Another complication is that interest rates and other loan terms can vary significantly between countries, so it may be significantly more cost-effective to borrow in one place versus another. This can also vary between types of financing, so in some countries, short-term financing has very different costs, legal obligations and protections than in the UK, while long-term borrowing is more similar.
Types of Business Capital for International Expansion
All of this complexity can make finding the right capital for your expansion tricky. You will first need to decide where you are expanding into, and how. This should be part of your strategic growth plan – your detailed business plan outlining short and long-term goals, expansion methods, financial forecasts, and so on. Knowing exactly how much you need to borrow, for what, will make every other aspect of your financial decision-making much simpler.
Then you need to consider your three main options: domestic funding (i.e. funding from a lender in your home country), foreign funding (i.e. funding from a lender in your target country), and global funding (i.e. funding from a lender that operates across jurisdictions and specifically works with international businesses). What is available to you, of these three, will depend on your business’s existing financial situation, your business plan, the country you are expanding into, and the type and scale of funding you are seeking.
Then, within the market you choose, there may be multiple different types of funding available, including traditional business loans, merchant cash advances, angel investors, crowdfunding, government grants and loans, peer-to-peer loans, venture capital, and even bad credit loans. Not every type of financing is right for every situation or every borrower, and this is why knowing exactly how much you need to borrow, how you intend to use the funds, and your business’s financial circumstances, is so crucial. You can then prioritise affordable, sustainable funding options that provide you with the flexibility and stability you need to meet your business goals.
Benefits of International Expansion
Given the intricacy of funding international business expansion, you may be left wondering whether it’s worth it. But there’s no doubt: growing your business into a new market can be a significant driver of success. It can allow your business to:
- Diversify revenue streams
- Access new, much broader customer bases
- Increase brand awareness
- Access new talent pools
- Lower costs (e.g. on property, payroll, inventory etc.)
Research from HSBC shows that 87% of UK businesses trading internationally intend to expand further over the next 12 months, showing that the overwhelming majority experience the positive impacts of this business model.
If you’re interested in maximising your business’s growth via domestic or international expansion, talk to Swiftfund. We can help you navigate the tricky world of business financing to find the best solution for your circumstances.