5 Signs You’re Ready to Apply for Small Business Financing

Author: Meredith Wood | March 22, 2018

It’s likely your business could always use a bit of extra cash, but are you ready to apply for business financing? Even without a pressing need for fast capital, the answer might be “yes.”

In fact, not needing urgent funding is a great reason to explore your loan or credit options.

Maybe you’re feeling the itch to expand, or you could use a bit of funding to take your business to exciting new heights.

If you recognize one or more of the scenarios below, it may be time to consider applying for a business loan or business credit.

1. You Need More Space

If your business has outgrown your existing space (or will soon), business financing can help you expand. In fact, many lenders offer loans designed for this purpose: commercial real estate loans.

If you control a business entity (as opposed to being an individual borrower), you can use a real estate loan to purchase a new storefront, office space, or other business-related property. You can also use your loan or line of credit to develop your property or perform construction on a piece of real estate.

While many traditional lenders (like major banks) offer real estate loans, remember that, as a small business owner, you have access to other options, such as SBA real estate loans. These are popular with business owners on account of their affordable interest rates.

2. Your Team Can’t Handle Demand

Expansion doesn’t always mean increasing your office size or adding new locations. If you find yourself with too many orders, too little inventory, or too few hands, you can fund these kinds of expansion with business loans or a line of credit, too.

If new equipment is what you need to help meet demand, you may want to consider equipment financing: small loans equivalent to the cost of your new equipment with typically speedy approval processes. This kind of loan is also unique in that the expected life of the equipment defines the loan term, and you use the equipment itself as collateral to secure the loan. If a dedicated equipment loan sounds like overkill, you may want to consider a line of credit instead.

Lenders are more likely to take a favorable view of your business if you’ve just come off a profitable period.

3. The Off-Season Is Looming

The best time to apply for a business loan or line of credit is when you don’t urgently need one. For seasonal business owners, this likely means the best time to apply for funding is during your busy season.

It’s easy to develop tunnel vision when business is booming, but having the foresight to plan for your next off-season before it arrives has the potential to expand your financing options tremendously. Don’t wait until just before the season starts up again when your expenses are likely to be highest and your cash reserves lowest—lenders are more likely to take a favorable view of your business if you’ve just come off a profitable period.

Documents like your cash flow and expense forecast statements can also help lenders understand the idiosyncrasies of your seasonal industry. If you’re currently experiencing a slow period and haven’t already prepared these statements, now is the perfect time to get moving.

4. Your Credit Has Never Been Better

Building strong credit takes time and a firm commitment to building your borrowing history, diversifying the types of credit you use, and making debt payments on time. If your credit score is nudging into the “Excellent” range (around 660 or higher), it may be a great time to apply for a business loan or line of credit.

Since “hard” credit inquiries can knock points off your credit score, you may want to wait until you’ve recovered from any such dips before applying for a new loan.

Once you’ve bounced back, that strong credit history can help open doors to more affordable loans or lines of credit with fewer fees, better rates and terms. That history can, in turn, help you graduate to even better financing options in the future.

Opportunity is knocking - up, up and away!

If you need resources to seize once-in-a-lifetime opportunities, a business loan or line of credit can help.

5. Opportunity’s Knocking

Got your eye on a profitable partnership? About to sign on a new client that could transform your business’s future? If you need resources to seize once-in-a-lifetime opportunities, a business loan or line of credit can help.

Be prepared to show lenders, with as many supporting documents as possible, how the golden opportunity you have in mind will strengthen your business. You’ll need to provide a clear timeline for how and when this opportunity will raise your bottom line.

If you decide to apply for a loan, typical lenders will want to see a plan for how you’ll use your capital. If you decide to use a business line of credit, on the other hand, you will have some more flexibility about how you use the funds, after you’ve been approved.

Don’t wait for disaster to strike before making a plan for business financing—you’ll only limit your options. Instead, plan in advance. Look out for the signs outlined above, and apply with confidence knowing your business is ready.

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