When Is The Right Time To Take Out A Business Loan?

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With SMEs looking to improve their financial standing, founders often wonder when might be the right time to take out a business loan?

Along with the question of timing, how easy it will be to obtain a small business loan that perhaps has fewer fixed assets to support a loan application is worth considering too. 

What Should a Founder Consider About Timing?

Taking out a loan before it’s required may sometimes be prudent. While it does bring forward the cost of servicing the loan by making timely repayments sooner, it provides some dry powder to call upon in difficult times. And as we all know, tough times don’t usually announce themselves with a big sign ahead of time – it pays to be prepared. 

Given that both the markets and business conditions can change markedly over just a single quarter, business founders must act when it's prudent to do so. Often, this beats waiting until the absolute last possible moment because some types of loans may require months to arrange. 

Will a Business Loan Be Put to Good Use?

What plan is in place for the use of the additional capital?

As a founder, you may expect that funds will be deployed sensibly and well. However, just like with personal finances, it’s always best to have a plan in place before borrowing any funds. 

The initial plan may be to leave the money available in the business checking account for the time being. Possibly, it may repay an ongoing line of credit or simply ensure there are sufficient funds. 

However, looking beyond that, it’s useful to plan how the money will eventually be utilized. If for no other reason than it guides the discussion about how much is required and whether the founder can qualify for a loan of that size? Without knowing this information, there’s too much guesswork involved. 

Is It Going to Be Affordable?

Finding a suitable lender for a business loan is not as easy as it seems. If you’ve never applied for this type of loan through your business, you may be in for a shock. 

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