9 Signs It’s Time to Get a Business Loan
If these signs feel familiar, you may be in need of a business loan.
- March 26, 2020
- 8 min read
You're our first priority. Every time.
We believe everyone should be able to make financial decisions with confidence. And while our site doesn’t feature every company or financial product available on the market, we’re proud that the guidance we offer, the information we provide and the tools we create are objective, independent, straightforward — and free.
So how do we make money? Our partners compensate us. This may influence which products we review and write about (and where those products appear on the site), but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. Bottom line? We’re on your side, even if it means we don’t make a cent.
No matter how well business is going, every small business owner will tell you they could always use more money. There are working capital needs, cash flow issues to address, emergencies to prepare for, employees to pay and so much more. Thus, even the most successful small businesses face financial challenges, and indeed, because they’re successful, their money issues might be even more pressing, such as funding to expand and hire more team members. If you suspect you might need more financing, read on to find out nine signs it’s definitely time to get a business loan.
Not being able to pay your employees doesn’t necessarily mean that business is not profitable or failing. Instead, many small businesses start off with one person, the owner, who may hire just one to two people, and often as independent contractors. If, however, your business picks up, you may hire full-time employees without fully considering how their compensation will fit into your budget. If you find yourself strapped for cash when it comes time to pay your employees, consider your business loan options.
There is a class of financing called payroll loans, which are business loans that can provide you with the funds needed to pay your employees. Payroll loans need to be funded pretty quickly because the borrowers need to be able to make payroll, which is typically biweekly or monthly. Payroll loans often come in the form of short-term loans or business lines of credit, and turnaround time on getting funds can be as short as one day.
Your company could be growing but not in terms of acquiring new space. Your company’s very success, such as getting too many orders or too much work for your team of employees to handle, could be a very good reason to think about a business loan. Obviously, the solution is not to curtail your sales — you’ll need to hire more people and enhance your company’s capabilities.
If you need to expand your team, then what you’re looking for is less of a payroll loan, which is generally short team. You’ll want to get a longer-term business loan that allows you the ability to scale up your business, including hiring several more team members to meet demand. As you augment the size of your team, you should consider using business financing to purchase software to really harness the potential of your enlarged team. It costs money to make money when your customers’ demand is on the rise, and a small business loan could be an ideal solution.
Many a small business that’s on the rise runs into a common growing pain: Not having enough inventory to fulfill orders. If you started off with the capacity for small orders, success could put you into a tough position if your inventory can’t keep up. If you get one unexpectedly big order, it can significantly disrupt your business. Not only may you not have enough inventory, but you might not be in a good financial position to purchase more inventory. Seasonality can aggravate inventory issues as well. For retail stores, this is a major concern during the holiday season as the influx of shoppers and sales orders depletes inventory faster.
Small business owners who find themselves in such a position should consider applying for a business loan. Managing inventory is one of the most common reasons businesses apply for loans and lines of credit. So much so, that banks and other lenders very often have lending products tailored to meeting inventory demands. Inventory financing can be in the form of a term business loan or a business line of credit. Term loans tend to have higher borrowing amounts, but lines of credit offer flexibility, which can be useful for financing ongoing inventory purchases.
Sometimes the best reason to get a business loan is because your credit is in better shape than ever. Building strong credit takes patience and discipline, involving making debt payments on time, paying more than the minimum, diversifying the types of credit you use and making sure not to utilize too much of your available credit line at any one time, if it’s revolving credit. If you’ve been doing all this, then your credit score could be in good or even excellent shape.
Applying for a business loan could could entail a hard credit inquiry by the lenders. A hard inquiry is just part of the territory, but it can usually knock you down a few points on your credit score. The good news is this is only temporary and once you start paying back your business loan in a timely, responsible fashion, you’ll work towards rebounding and improving your credit score even more so. With a higher credit score and thicker credit profile, you’ll open more potential sources of financing for the future.
Tons of small businesses rely on commercial vehicles such as vans, semi-trucks, tow trucks, busses and passenger vehicles. You could own a restaurant and want to branch out via buying and operating a food truck to sell your food. A moving company might need to enlarge its fleet of trucks. Distributors of packages and parcels ordered online may need to buy more vans for increasing orders. In all of these cases, a business loan could be a great option.
What’s great about buying vehicles for your business is that there are plenty of lenders that specifically cater to commercial vehicle loans. These business loans can come in all sorts and sizes, such as specialty vehicle financing to modify commercial vehicles with special business equipment or comply with accessibility needs of passengers or drivers. There is truck financing, for heavy trucks and semi-trailer trucks. There are even commercial lines of credit available to purchase or lease commercial vehicles, which allows you to keep another business line of credit you might have dedicated to other needs.
Owning a business that depends on certain seasons for the majority of its sales or revenue can be ideal candidates for business loans. One of the best times to apply for a business loan or line of credit is actually when you don’t urgently need it. Therefore, for seasonal business owners, one of the better times to apply for a business loan is during your busy season.
Getting caught up with booming business and losing sight of the bigger picture is common. With seasonal businesses, you can’t afford to lack this kind of perspective and foresight. This is why it’s so important to plan in advance of your off-season and apply for business financing well ahead. Waiting until the last minute when the off-season is upon you can lead to serious disruption of your business. You also don’t want to apply for a business loan before your on-season is underway because you’ll likely face a lot of expenses preparing for the busy season. Applying for a business loan at the height of your peak season means you can show lenders good revenue numbers and hopefully some cash reserves from your sales. This all increases your chances of getting a business loan with the best terms.
If demand is outstripping the capacity of your current equipment or you want to update what you have, then getting a business loan for purchasing equipment could make a lot of sense. When it comes to financing new equipment, there are several ways of going about it. You could, for instance, apply for a term business loan or a business line of credit and use the funds to purchase equipment.
Another option specifically designed for equipment purchases is equipment financing. Rather than a traditional term loan or line of credit, equipment financing usually involves a smaller loan equal to the cost of your new piece of equipment. The loan works by having term lengths based on the expected life of the equipment while the equipment itself serves as collateral to secure the loan. Whether it’s specifically equipment financing or a more general business loan, you have viable options for funding if your business is need of new equipment to be successful.
Just like success can breed financial issues, so can an attractive business opportunity. It could be acquiring a competitor, signing a new high-profile client or exploiting particular market conditions. Business opportunities very frequently require money to take advantage of them, which is why a business loan could be a good tool to get what you want.
When applying for a business loan, it’s important that you demonstrate to lenders how good of an opportunity you’re eyeing. If it’s acquiring another business, you should provide documents showing their financials, such as an income statement, balance sheet and cash flow statement. If it’s exploiting an opportunity in the market, you should have documents and research to back up your assessment. Also be sure to provide a clear timeline for how this opportunity will impact your bottom line and when it will start paying off.
Small businesses outgrow their existing office or work spaces all the time. You might want to move to a brand-new office location or take up an additional floor of the building you’re in. Or perhaps, you want to construct an addition to commercial property you own. In all these cases, business loans can help you with physical expansion. What’s more, many lenders offer loans designed specifically for this purpose, such as commercial real estate loans.
As a small business owner, you can apply for and use a real estate loan to purchase a new storefront, office space, purchase land, remodel and other business-related property moves. You can also use your loan or line of credit to develop your property or perform construction on a piece of real estate. You can find these types of business loans from traditional banks and online banks as well as the Small Business Administration’s (SBA) 504 Loan, which is catered towards commercial real estate purposes.
Up Next: What Is Alternative Lending?
Small businesses, no matter how successful they are, can use extra money to help ensure their operations run smoothly. With so many moving parts to account for and pay for, such as payroll for employees, working capital to address cash flow issues, inventory to fill and much more, businesses have countless uses for additional financing. An important point to take away is that you shouldn’t apply for a business loan out of desperation or urgency. Any financing decisions you make should be well thought out and done in advance of any timing issues, such as business seasonality. What’s more, what you should do both for yourself and for lenders is detail exactly what you plan to use the desired funds for and how they’re going to help your business’s bottom line.
More From Seek
- How to Get a Business License
- Line of Credit vs. Credit Card — What’s the Difference?
- How to Find Investors
Business Loan Resources
Photo credit: GaudiLab/Shutterstock.com
Best Startup Loans of 2020 - Get Between $5,000 and $500,000
Get more great articles straight to your inbox!
Let us make it up to you with better articles straight to your inbox.
Recommended For You
If you need to take out a loan for a home improvement project, for school, for starting a business, or for any other reason, you'll have to decide between a secured vs unsecured loan. While both of these loans can... Read More
- July 27, 2021
- 6 min read
Almost everyone will take out at least one loan in their life, and most business owners have to take out at least one business loan to pay for property purchases, equipment, and more. Loans allow you to get the cash... Read More
- July 23, 2021
- 6 min read
Whether you're a small business owner looking for a small business loan or looking to make a sizable personal purchase, you may be considering taking out a loan. Loans provide a way for people to pay for things that they... Read More
- July 17, 2021
- 6 min read
If you’re considering getting a small business loan, SBA loans may be an attractive option. However, some people don’t need large loans. That’s where the SBA Express loan program comes in, as they offer smaller loan options and a more... Read More
- July 15, 2021
- 5 min read