When Should Your Small Business Apply for a Loan?
Applying for funding is an exciting time for small businesses, but it’s no small decision to make. Small business owners must be committed to investing the time and effort that applications require.
To make the process more manageable and boost the likelihood of success, here are some of the best times to apply for small business financing.
1. When You Want to Make a Big Change in Your Business
Once your business has been open for some time, you may want to try something new. The possibilities of evolving your business are endless, from introducing a new product or service, to shipping goods nationally or internationally, to opening a new location, and many more. A loan can give your business budget the boost it needs to make these big dreams for your small business happen.
2. When You Need to Build Credit for the Future
One of the key factors that lenders look at when making funding decisions is a business’s credit score. This means that borrowing in larger amounts can be difficult when your business has no credit history. You can build business credit by taking out loans in smaller amounts and managing them effectively to prove you’re a responsible borrower. This will make it easier for your business to get funding in larger amounts when you need it down the line.
3. When You Need Equipment or Commercial Real Estate
As your business grows, you will likely need to make upgrades to keep up. These can include purchasing new or additional equipment or opening a storefront for customers to visit in-person. A loan can provide the funding needed to make such purchases without making a major dent in your business’s savings.
4. Your Business’s Busy Season
If your business’s products or services become especially useful during a certain time of year, your business is probably at its busiest then. For example, retail businesses usually see the most traffic during the holiday season. Your business may need to compensate for this period by hiring additional staff, stocking up on supplies, or purchasing extra equipment. A loan can help you ensure that your business is ready to support customers during busy times.
How Long Does it Take to Apply for an SBA Loan?
The total length of securing an SBA loan could take longer than a term loan due to the SBA’s approval process. However, preparing your business for a business loan application could take weeks as you gather all necessary documents needed for the application. In most cases, what can prolong funding a business loan is the lack of documents available that are needed for a smooth application process. SBA Preferred Lenders will typically have a loan processed quicker than lenders who are not, but overall length can vary between lenders. It’s best practice to take a proactive approach to funding—before you need it.
Small Business Advice for Entrepreneurs Ready to Take the Next Step
It’s important to have the adequate materials ready to begin your business loan application process.
Create a Business or Financial Plan
If you don’t already have a business or financial plan, this is your moment to make them. A business plan gives you a full report on how your business intends to perform and reach its goals. A financial plan is an outline of your business’s current, short, and long-term financial goals. Having these documents shows lenders that you are serious and have a plan for use of funds.
Gather All Documents
When applying for an SBA loan you will most likely be asked to provide SBA required documents, business documentation, legal and operational documents, and specific documentation and information. Lenders ask for these documents because it helps understand your business and needs as a whole.
Do Your Research
No two lenders are alike, and no two lenders will be willing to fund your business. Do your research on which lender will be the best fit for your business. Ask yourself, “Does this lender fund businesses like mine?”
The most essential factor to consider in deciding when to apply for a loan is your business’s readiness. Make sure your small business is in a position to afford a loan. When your business is in a good place, you can likely negotiate better loan terms since it will seem less risky to lenders.
The more prepared your business is for borrowing, the easier it will be to get funding and the more your business can maximize its impact.
Frequently Asked Questions
When should your small business apply for a loan?
You should apply for a small business loan when your business has evolving needs, you’re building better credit, you’re in need for equipment or commercial real estate, you need working capital.
How long does it take to apply for an SBA loan?
The full application process from submission to funding for an SBA loan takes longer than non-SBA loans. At traditional lenders it can take 60-90 days or longer. Take a proactive approach to securing funds before you need it.
What are tips for a small business ready to begin an application for a small business loan?
Gather all necessary documentation that will be asked of you during the application process. Create a SBA loan checklist to ensure your application process moves along quickly. If you don’t have the necessary documentation, gather them. Once you have them, find the best lender that will work best for your business.