Applying for a business loan is a significant financial step for numerous small businesses. You might be looking to expand your office space. Perhaps you’re thinking about buying out a competitor. You could be looking to increase staff or launch a new product line. Whatever the reason, additional capital is essential to the success of your project.
There are quite a few elements that go into procuring the money you need. These all factor into the business loan process, from putting together the perfect application packet to having collateral if the loan requires it to finding the best lender with which to work. Another aspect of commercial lending to consider is when to apply for funding. That is to say when are the best times for small businesses to go ahead and submit their loan application?
A general rule of thumb is that you might not want to apply when you’re hurting for money. This is because your cash flow position is likely not the best. Your credit may be lower than it needs to be, and you could have other outstanding debts that make it too risky for a lender to take you on. So, when should you apply for business funding for your company? Keep reading to find out more!
Small Business Lending – Timing is Everything
Getting your timing right in terms of your loan application is critical. It very well could mean the difference between you being approved for the loan or your application being rejected. Did you know that, on average, nearly 45% of businesses will apply for a loan during a given year? Alternative lenders have the highest approval rating at just under 57%. The key again is to maximize your strategy in terms of timing. Timing is important! Below are the four best times for your small business to consider applying for financing.
1) During the busy season
There are many businesses out there that tend to be more seasonal. For instance, accounting firms are particularly busy during tax time and can be slower at other times of the year. Or take a landscaping company. Business tends to be booming in the summer months, while winter can be quite a lot slower, comparatively speaking. Applying for a business loan during the busy season is always a good idea when you’re bringing in more revenue than at other times during the year. This way, a lender can see that you have positive cash flow and are in a more comfortable position to start paying back a loan. And, you will have the money at your disposal to help carry you through the slower seasons.
2) Prior to launching a new product or service
Take the example of a spa. They may be going steadily along, sustaining their business and accruing clients, and because of this, they could choose to expand their offerings. This might potentially mean introducing more products that clients can buy. For instance, during the pandemic, several spas segued into the take-home DIY spa kit sector. If you plan to do something by way of a relatively significant new product/service, then applying for a loan could be a great idea. Obviously, you can use the funds to help launch the new initiative, but keep in mind that this new offering will generate additional revenue, thus helping you pay back the loan.
3) During the holiday rush
Around the holidays, things tend to get a bit more hectic for many businesses. You could need to hire more staff to help handle the additional orders prompted by this time of year. There may be specific holiday marketing campaigns involved. Whatever the need or project, there will likely be an additional cost attached, and so here is where a business loan could undoubtedly come in handy.
4) During the slow season
During your busy season may be an ideal time to apply for a business loan, given your overall financial position. Still, many companies find that they need money during the slow season. Sales are down, and you need to figure out how to keep up with expenses. You want to think ahead here and ensure that you are positioning yourself in the best possible way to qualify for commercial funding during the slower times. When you get the loan, use it wisely to sustain your small business until sales start to pick up again.
First Union Lending Works with Small Businesses
We believe in working hand in hand with the country’s smaller businesses in order to help them make it through and ultimately succeed. We offer a variety of fast and flexible loan programs. Call today and let’s get started together!
FAQs
Years in business
The longer you've been operating, the more likely you are to have money to repay your debts. To qualify for a business loan from a bank, you'll typically need to have been in business for at least two years.
Is it hard to get approved for a business loan? ›
While getting a business loan can be difficult since most require strong personal and business credit scores, reliable cash flow and at least two years in business, there are alternatives available to obtain the cash you need.
Is it easier to get a business loan from a credit union? ›
Obtain a loan quicker.
Combining superior membership relations, a lack of large institution bureaucracy, and smaller loan sizes often results in faster approval of your loan. That means you can get back to business quicker and with fewer interruptions.
How can I increase my chances of getting a business loan? ›
A strong credit history, with a good payment track record and low credit utilization, increases your chances of approval. Another crucial factor in getting a small business loan is your business's financial health. Lenders want to see evidence of stable revenue and positive cash flow.
How fast can I get a loan with a new LLC? ›
It depends on the lender and type of loan you apply for. Online lenders offer fast business loans that can be funded within 24 hours. Banks and credit unions may take a week or longer.
How long does it take to be approved for a small business loan? ›
Time: as little as 10-14 days, or as long as 60-90 days. Underwriting is the process by which a lender determines if they will approve your loan application, how much they will approve and at what rate you'll have to pay it back.
What disqualifies you from getting a business loan? ›
Reasons you may be disqualified from a small business loan include a low credit score, poor cash flow, no collateral, significant debt, a bad business plan or having a business in a risky industry.
Why would you get denied a business loan? ›
Common reasons for loan rejection are not having a long track record in business, deteriorating business conditions in the industry where you operate and poor cash flow. If the lender is concerned about something you can control, correcting the situation and then reapplying may be the best course of action.
What is the minimum credit score for business loan? ›
Minimum credit score by business loan type
| Term loan | While banks and credit unions typically require a score of 670 or above, online lenders may only require a score of 500 |
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| SBA loan | Lenders offering SBA loans require credit scores between 620 and 680 |
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Credit unions tend to offer lower rates and fees as well as more personalized customer service. However, banks may offer more variety in loans and other financial products and may have larger networks that can make banking more convenient.
Yes, it's possible to get a business loan with bad credit. Some lenders don't have a minimum credit score and look at the business's overall health instead. However, you can expect to pay higher fees or have a higher APR if you have bad credit.
Does a business loan run your credit? ›
Normally, your personal credit report shouldn't be impacted by a business loan, even if you've personally guaranteed the loan. Business debt and payment history do not affect your credit score, unless the business defaults on the loan, in which case your personal credit can be negatively impacted.
What is the quickest way to get a business loan? ›
If you want the fastest option for small business funding, a business loan from an online lender may be the best option. These lenders require minimal documentation and use software to streamline the approval process.
Is it hard to get a first time business loan? ›
Banks typically offer competitive interest rates, long repayment terms and large loan amounts. Taking out a small-business loan from a bank can be difficult, however, if you've been in business less than two years, don't have consistent revenue or have fair, poor or no credit.
How do I convince a bank to give me a business loan? ›
In short, the key items for your bank/investor meeting are:
- Being prepared.
- Having good knowledge of your file.
- Ensuring your application is complete and up to date.
- Presenting realistic figures (draw comparisons with competitors, ask that they be verified by an expert…)
- Being realistic!
To qualify for any online lending, you'll need to have been in business for at least six months. Ensure you're familiar with your two credit profiles so you know exactly what lenders and banks see when you apply for a loan. In addition to understanding your personal credit score, also know your business credit.
What credit score do you need for a business loan? ›
Still, a higher credit score of 700 or above generally means you'll be eligible for funding with more attractive terms. And while it's possible to get a business loan with a credit score as low as 500, a lower credit score could make it more challenging to qualify for a business loan.
How much collateral do you need for a business loan? ›
Any assets you pledge should be worth at least as much as the amount your business wants to borrow. In other words, if you want to take out a $100,000 secured business loan, you may need to provide $100,000 worth of collateral to back the financing.
Do you start paying back business loans immediately? ›
“Once funds from an approved loan are disbursed, interest begins to accrue immediately and is usually expected to be paid monthly,” said Larry Fuschino, owner of Raider Consulting. “Principal of the loan is to be repaid based on the terms of the loan, which can vary with each situation and borrower.
