5 Urgent Reasons to Apply for a Business Loan Before 2022
The prospect of digging up credit reports, income statements, and other financial information for your loan application can feel overwhelming. In addition, prior to applying for business financing, you’ll need to conduct significant research to find the best lender for your funding needs.
However, if you’re serious about growing your business in 2022, and you need a loan to do it, you’ll need it before 2022. By the time next year rolls around, you may miss the chance to capitalize on a variety of opportunities that 2022 will present.
To take advantage of time sensitive business opportunities, it’s crucial that you start your loan application process before the new year. To ensure you understand the urgency, we’ll review five reasons that small business owners might benefit from getting a business loan before 2022.
Why You Should Get a Business Loan Before 2022:1
1. Make Investments Before Inflation Rises
In October 2021, the personal consumption expenditures price index increased 0.3 percent. That pushed the year-over-year gain to 4.4 percent, which is the fastest inflation has risen since January 1991. According to The Wall Street Journal, “Uncomfortably high inflation will grip the U.S. economy well into 2022.”
While nothing is certain, at least some financial experts believe inflation will continue. If you believe that they’re correct, you may be better off making a large purchase sooner rather than later. Due to this, applying for a small business loan before 2022 may help your money go further than if you waited.
2. Capitalize on the time value of money
The time value of money is the concept that the value of money decreases over time. This means that having $100 in your hands today is worth more than having $100 one year from now, because that money has earning potential.
If you receive $100 today, you can invest it immediately and start earning a return. This means that by the end of the year, if there’s a seven percent return, you’ll have $107.
With business loans, the amounts involved are much higher, yet the time value of money doesn’t change. Since it’s more valuable to have money today rather than tomorrow, all else being equal, it’s better to receive your business loan before 2022. As Investopedia explains, “This is because money can grow only through investing. An investment delayed is an opportunity lost.”
3. Take advantage of seasonality
Depending on your business’s industry, you could risk missing out on seasonal business opportunities if you don’t apply for a business loan prior to 2022.
For example, people spend money on health club memberships, self-help books, dining out, and retail sales around New Year’s. Florists, bakeries, personal-care and jewelry retailers follow closely behind for Valentine’s.
For seasonal businesses, at these busy times of year, expenses spike too. A business loan can help cover common business expenses, such as:
- An increase in payroll
- Holiday advertising
- Equipment repairs
Of course, receiving a business loan is only helpful if you have it in place when the funds are needed, which makes it important to start applying before 2022.
4. The historically low interest rate environment may go away
In early November 2021, the Federal Reserve announced that it was pulling back on its emergency stimulus efforts. This announcement made it clear, according to CNBC, that the post-pandemic, low-interest rate environment is changing. However, while it’s clear that rates will rise—and in some cases already have—it’s not clear when or how fast that will happen.
That’s why, to avoid potentially higher loan costs, it may be necessary to lock your rate in place before 2022.
5. Prepare for an uncertain environment
Unfortunately, 2021 has been just as unpredictable as 2020 was for small business owners. They’ve faced record inflation, new virus variants, supply chain issues, labor shortages and other notable challenges. Hopefully, 2022 will bring a reprieve, but as we’ve all learned, it’s best to be prepared.
Although some business owners have taken advantage of SBA loan programs such as the Paycheck Protection Program or disaster loans, these COVID financing programs aren’t always available. Plus, you may not qualify for emergency financing, and instead may benefit from applying for a loan prior to any future financial challenges that could arise.
In addition, experts at MIT believe, in the best-case scenario, it’ll take until the second quarter of 2022 for supply chain issues to resolve themselves. Federal Reserve chair Jerome Powell also thinks supply chain issues will last through 2022. If those issues get worse in 2022, a business loan is going to be more useful if you have it beforehand. After all, a business loan won’t be much help if there’s a material shortage when you’re ready to make a purchase.
Business Loans in 2022: There’s No Time Like the Present
Not every entrepreneur needs to, or even should, apply for a business loan.
For example, if you have a bad credit score or consistently low cash flow, you may not qualify for funding options. In this case, you’ll be better off taking time to improve your business credit score prior to pursuing a business line of credit or term loan. Although you could get a loan with bad credit, the terms and rates may not be ideal.
However, if you review your business plan and find that you have a funding need, it may be best to get that financing set before 2022. There isn’t much time left in 2021 to make financial investments, and even fast business loan programs take time to finalize.
If you’re ready to secure a business loan, here are a few educational posts that can help you jumpstart the researching process:
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.