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Monday, September 25, 2023

How to Know When Your Business Requires a Small Business Loan?


There are times when taking out a loan becomes inevitable for a business. Whether it is for the sake of increasing capacity, expanding to new locations, paying off short-term expenses and debt or simply to pay your employees, a loan taken at the right time can do wonders. But the real question is how do you know when the right time is for your business to take out a small business loan? It is a serious question and answering it incorrectly can not only lead to taking a loan that turns out to be virtually useless, but it also increases the burden of debt on operations and can threaten long-term financial distress.

Therefore, as a small business owner in the United States, it is prudent to equip yourself with the proper information going forward so that you may be able to make the right decision at the right time regarding your company’s financial future.

This article shall help you in understanding and identifying the right time to make a decision for taking out a loan by highlighting key factors that may be indicators of a looming opportunity.

Factors You Need to Keep an Eye On

As mentioned above, there are certain indicators that tell you when the time is right to apply for a small business loan. As the owner of your business, you need to be able to identify these factors and act accordingly to take advantage of the situation.

  1. Business is booming: The best time to take out a small business loan is when your business is booming and the industry as a whole is doing well. After all, the eventual aim of any business is to expand, grow and capture more market share so what better time to inject extra capital into your business when the business is doing well. This is the ideal time to aim for expansion and if you wish to expand without interrupting your revenue stream then you should probably take out a loan at the time when business is earning profits. And besides, nothing is guaranteed in business so if you are making profits right now, it does not mean you will continue to do so every year. That is why the best policy is to be prepared for the hard times by taking the necessary precautions when times are good.
  2. Your Business Credit Score is High: Credit score is often key factor lenders consider while weighing applicants against one another. The credit score is basically a three digit number that represents your creditworthiness and shows how likely you are to pay back the loan. The best time to apply for business loans is when your credit score is above 640 and ideally above 700 as well. Since it takes time to build credit as well so you should not delay applying for a loan when it reaches a high.
  3. Off Season is Near: The off-season is what costs most businesses quite a bit of profit so it is better to be prepared for it before it comes. If you know your sales are not going to be as high as they are now and you are going to need a loan in the future, then it is better to take it now when you can get good terms on it. Often using an online lending platform like Orumfy can help you secure good loans as compared to other loan application processes. Of course, for that, you need to have all your documents in order such as your income statement, cash flows, and a business plan for the next 3 to 5 years and other similar items.
  4. Chinks in the Armor: This simply means that there are minute problems in your business but they are just that; minute. They do not demand immediate attention nor do they warrant it since they do not threaten the overall performance of the company. Yet, ignoring a problem until it becomes large enough to cause panic is not the solution. These chinks in the armor may end up costing you huge losses and may even collapse your business if they are not attended to in time. For this purpose, taking a small business loan to cover up these problems before they become life-threatening for the business is the way to go. Whether it is malfunctioning equipment, irregular inventory shortages or problem with employee salaries, they need to be dealt with when the overall state of the business is favorable and you need only a small loan to fix all these problems.

These were just some of the signs that tell you the right time to take out a small business loan and in many cases diagnosing the problem beforehand can help you better decide how to choose a small business loan.

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