Businesses typically go through many different phases including periods of profit growth and decline. During downturns in performance, it is common for business owners to consider financing to help them through the tough times, but the irony of a business loan is that you are more likely to be approved for one when your business is doing well, than you are when you are desperate need of cash. For that reason, it’s crucial to plan ahead. By taking the time to evaluate the life cycle of your business, including expected lulls and future business goals, you can help to ensure that you’ll have the cash needed to keep your business thriving.
Here are some instances when it might make sense to consider business financing:
Here are some instances when it might make sense to consider business financing:
- When your business is not strapped for cash. You don’t want to wait until you are in desperate need of cash to take out a business loan. While a loan may seem like a good way to pull your business out of a financial hole, it can be difficult to qualify for one when your business is struggling. It can also be difficult to repay a loan when your business isn’t performing well. A better idea is to estimate your future cash flow, and if warranted, proactively apply for a loan or line of credit when your business is doing well. That way, you’ll have the funding you need to get through any bumps in the road as they arise.
- When you are anticipating a seasonal lull. If your business has an off-season or some months that are slower than others, a business loan or line of credit can help see you through the leaner times. Plan ahead for this lull by applying for business financing while you are in your peak season. By securing funds ahead of time, you can stay on top of overhead expenses while revenues are expectedly low, and maybe even purchase inventory in advance of your high season.
- When you are planning to grow or expand your business. If expansion is on the horizon for your business, you should try to estimate the costs involved. Whether you will need to purchase new equipment, open a new location, or add additional staff, knowing what to expect from a financial standpoint is essential. Once you have an idea of the additional cash flow needed to achieve your business goals, you can apply for the necessary financing.
- When you want to establish credit history for your business. If your company’s financials are in a good spot, but you’ve never sought business financing before, you might consider applying for a small loan or business credit card to start building a credit history for your business. Establishing a strong business credit score now can potentially help you to secure a larger loan down the road when you need it. Just be sure to use any credit you are granted responsibly and make all loan or credit card payments on time. Otherwise, you could end up damaging your business credit score and make it difficult to secure business financing later on.