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The 4 Best Times to Apply for a Business Loan
June 16, 2021
The best times to apply for a business loan

The 4 Best Times to Apply for a Business Loan

Having a sufficient amount of cash flow for your small business is crucial, especially in certain situations. Whether you run a seasonal business or are anticipating an influx of customers during the holiday seasons, there are times when your business requires additional capital.

Due to this, many small business owners pursue small business loans to increase their cash flow or pursue new opportunities.

If you’re wondering when to get a small business loan, we’ll explain four of the most common situations in which your business could reap the benefits.

When Should You Apply for a Small Business Loan?

1. The Holiday Season

The holiday season can be a hectic time for business owners, which is why a business loan can be beneficial!

To make holiday sales, you must invest in your business to attract customers. For instance, you’ll need to afford expenses such as:

  • Purchasing inventory
  • Hiring seasonal employees
  • Affording additional equipment
  • Paying for holiday marketing campaigns

Without additional financing, it can be difficult to afford these costs, so we suggest applying for a loan prior to the holiday season.

2. Your Business’s Busy Season

Depending on your business’s industry, you may have a busy season, in which your business experiences a dramatic increase in demand for its products or services. Examples of busy seasons include:

  • Tax season for accountants
  • Spring and summer for landscapers
  • The holiday season for retailers

If your business has a busy season in which it generates most of its revenue for the year, you don’t want to be low on cash flow. If you are, you may have trouble affording necessary expenses. Therefore, you should apply for a term loan to pay for necessary operational costs.

For instance, if you operate an accounting business, having access to a loan or business line of credit can help you pay additional contract staff needed to get through tax season. As a landscaping business owner, you can pay for equipment and other tools needed to complete jobs. Or, if you own a retail store, having loan options will allow you to pay for inventory prior to the holidays.

Ultimately, having a business loan will allow you to make the most of your busy season, without worrying about having enough cash flow.

3. Your Business’s Slow Season

Although business owners who are experiencing success can utilize a business loan, so can businesses that are having a lull in sales.

If your business isn’t generating enough sales, you can apply for a loan to make improvements to your business.

For example, if your business location’s interior needs some TLC, or you need to update inventory, this loan can help you improve your business, thus attracting customers. Plus, this loan will allow you to have cash flow to make it through slow seasons, so you’ll be able to pay bills and stay operational.

Most recently, many businesses experienced a lull in sales during the COVID-19 pandemic. However, with access to financing options such as SBA loans, the Paycheck Protection Program, loans from alternative financial institutions, and grant programs, they were able to sustain the slow season.

4. Prior to Introducing a New Product or Service

Sometimes it makes sense for a business to introduce an additional product or service in order to reach new customers.

For example, a restaurant that focuses on serving brunch may consider staying open later to feed the dinner crowd. This requires a new menu, additional ingredients, and kitchen equipment. In addition, the restaurant owner will need to hire more staff members.

Once the restaurant owner receives a business loan, they can afford their new business plans. Plus, once they start generating more revenue due to their longer business hours, they can responsibly repay their loan.

According to Chron, “your total budget for a new product or service includes all costs from development through delivery.” The overall costs will likely be greater than simply the cost of manufacturing or obtaining the product. To prepare for launching a new product or service, consider pursuing a loan to help you cover your financial needs.

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When Should You Delay Applying for a Business Loan?

Now that we’ve reviewed when it’s beneficial to apply for a business loan, you should also be aware of when applying for financing isn’t prudent. There are some situations in which you may not be ready to take out a loan, and could benefit from delaying your application.

1. If You Have a Low Credit Score

If you have bad credit history, it may be difficult to qualify for a small business loan with desirable terms. Even if you do qualify, your poor personal credit score may cause the lender to give you a loan with high interest rates. In addition, if you do receive a loan and have trouble repaying it, your credit score could decrease further.

Due to this, we suggest improving your credit score prior to applying for additional financing. To start, make checking your credit report part of your regular routine, so that you are aware of any changes in your scores.

2. If You Are a New Business Owner

When you start a business, it’s understandable that you’d require financing to get your operations off the ground. However, many online lenders require that their applicants be in-business for at least 3 months, if not longer.

In addition, when you start a new business, you may not know how much money you’ll truly need, or if you’ll be able to afford the repayment schedule. Due to this, it may be prudent to wait until your business has been operational for some time before applying.

3. If You Already Have an Outstanding Loan Balance

If you’ve already taken out a small business loan that you haven’t finished repaying, it isn’t recommended that you apply for another one. Most likely, you won’t be able to afford both loan payments, in addition to payroll and other recurring bills.

Instead, we suggest paying off your original loan balance prior to applying for another loan. That way, you won’t be stacking loan payments or putting your business’s financial health at risk.

Next Steps: Consider Your Business’s Needs

If your business is experiencing any of the situations featured in this post, it might be time to start your small business application.

Of course, there are other times when you find yourself in need of additional working capital, as every small business is different. Knowing when your business could thrive with the help of extra financing is important, so contemplate your business needs and consider the benefits of a small business loan.

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Editor’s Note: This post was updated for accuracy and comprehensiveness in June 2021.

Fora Financial

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

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Fora Financial is a working capital provider to small business owners nationwide. In addition, the Fora Financial team provides educational information to the small business community through their blog, which covers topics such as business financing, marketing, technology, and much more. If you’d like to see a topic covered on the Fora Financial blog, or want to submit a guest post, please email us at [email protected].