Having enough cash flow for your small business is crucial, especially if you have a seasonal business or have lots of customers during the holiday seasons. Many business owners pursue financing for this reason. If you are wondering when to get a small business loan, we’ll explain the four most common situations in which your business can reap the benefits.
When Should You Apply for a Small Business Loan?
The Holiday Season
You must invest in your business to attract customers to make holiday sales. For instance, you’ll need to afford expenses such as:
- Purchasing inventory
- Hiring seasonal employees
- Affording equipment
- Paying for holiday marketing campaigns
It can be hard to afford these costs without additional financing, so make sure to apply for a business loan before the holiday season.
Your Business’s Busy Season
Your business might have a busy season in which your business experiences a dramatic increase for its products or services. examples of busy seasons include:
- Tax season for accountants
- Spring and summer for landscapers
- Holiday for retailers
The last thing you want is to be low on cash flow, you might have trouble affording necessary expenses. Therefore, you should apply for a term loan to pay for necessary operational costs. It will allow you to make the most of your busy season without worrying about having enough cash flow.
Your Business’s Slow Season
Although business owners who are experiencing success can utilize a business loan, can businesses that are slow 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, the loan can help you improve your business.
Before 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.
When Should You Delay Applying for a Business Loan?
You should also be aware of when applying for financing isn’t right. There are some situations in which you might not be ready to take out a loan and can benefit from delaying your application.
If You Have a Low Credit Score
If you have bad credit history, it might be hard to qualify for a small business loan with desirable terms. If you do qualify, your poor personal credit score might cause the lender to give you a loan with high interest rate. In addition, if you do receive a loan and have trouble repaying it, your credit score could decrease further.
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. It is important to note that online lenders require that applicants be in business for at least 3 months or more.
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.
If You Already Have an Outstanding Loan Balance
If you have taken out a small business loan that you’re not done paying back, it’s not recommended that you apply for another one. You will not be able to afford both loan payments, in addition to payroll and other recurring bills.
Pay off your original loan first before applying for another loan. That way you will not be stacking payments or putting your business’s financial health at risk.
The Bottom Line
It is important that you know your business well and be prepared to know ahead of time when you’ll need working capital. Every business is different so consider the benefits of a small business loan until then.