When we take a business loan for expansion, what is the best allocation of the funds?

I and my partner run a small e-commerce business selling a healthy spiced latte mix. We are running short of cashflow though we are seeing traction in online sales. If we take a loan for expansion, there are various things we can spend on - Digital Marketing (Which we are seeing decent results now), Offline Marketing (Bus Stop Ads/TV/Radio), Product Expansion (Which can increase our average order value, right now we only have 2 flavours), Distribution Channel Expansion (Currently we are already in 1 outlet in a major retail store in Singapore but not getting sales there). How should we allocate our funds if we were to take business loan?


I am in Singapore, help many e-commerce businesses grow sales 5x to 15x last year. One major challenge to the growth is cash flow.

There are many factors to look at and these 3 major areas are critical:

1. Cash flows - you need to study the cash flows patterns (short-term, middle-term, and long-term) and develop a cash flow model for your business. Without this, you can't even tell when and how much money you needed + unable to identify business survival risk from cash flows perspective + to determine where is the trapped cash

2. Behaviour of the revenue and cost - this is essential to help you determine the break-even point, commitments, maximize profit, strategies to increase revenue and reduce cost, how much to invest in operation vs improvement of the business.

3. Capital structure - there are 3 main sources of cash, i.e. revenue, loan, and equity. There are other areas such as Government grants and donations which the impacts are not significant enough to focus on. When we talk about capital structure, we will look at what is a good mix of loan and equity to manage your business gearing risk.

After you have the above 3 sets of information, you can determine how many loans to take up and how to allocation them to different aspects of the business.

Do note that good cash flows management will improve your cash position, but to increase your sales, other techniques are needed but not discussed here.

+22 experiences in helping +350 SG and Asia companies to grow from a startup to listed across many industries. We cover all aspects of the management of the companies, financial and taxation services, boost sales & profit, improve processes, and growth framework to grow companies.

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Answered 3 years ago

Equity financing happens when you sell shares or a stake in your business in lieu of money or capital. Certain aspects of a business that need money are best tackled by a loan and others through equity. For example, if you must buy a piece of machinery for your business and need money to the purchase, a bank loan would be the most suitable way. Banks have lucrative products that are meant especially for such asset finance and can work out the best for the business. Given the equity route does not have the pressure of paying EMIs every month, a business owner has the flexibility and ease of concentrating on his business. A percentage share of the company in exchange for money is what is at the heart of this transaction and hence it becomes important for the business owner to decide how much stake he or she is willing to give for the money on offer. Ideally, no business owner wants to give away too much stake and hence it depends on what each party can negotiate. Building business profile- Both debt financing and equity can build the profile of a business, although in slightly different ways.
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Answered 3 years ago

I'd recommend testing the waters first - try to determine how your sales figures will change depending on capital allocation. E.g. you can do a on-the-street survey regarding new products. Much cheaper than launching a new product and finding out the hard way it doesn't generate sales. Depending on location specifics, physical marketing might be easier (and therefore cheaper) than fighting for visibility online. Think about client segmentation to establish which marketing strategy is optimal for your target groups.

Answered 3 years ago

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