When is the right time to take out a business loan?

As we continue to strive toward equal opportunity for women in business, we find that access to finance remains an area needing improvement.

Recent research has found that just under one in ten UK SME’s are still not seeking external capital that is required to facilitate business growth. What’s more, female founders, in particular, are twice as likely to be discouraged in seeking funding when compared to their male counterparts. 

This disparity has largely been put down to higher risk perceptions and a reluctance to seek equity investment, even when it is the most obvious and appropriate source of finance.

However, with the huge variety of external funding options becoming more readily available to businesses, there really is little reason to fear applying, ensuring it is the right time for your business, of course. 

Have you encountered an opportunity for your business? 

In business, you’ll often come across opportunities that could change your business for the better. If you don’t make quick use of a good opportunity, you might never get the chance to do so again! In these situations, a business loan could be exactly what you need to turn chance into reality. 

Naturally, it’s important to ensure that the opportunity’s potential return on investment outweighs the total cost of the loan. You’re the business owner here, and no one knows your business better than you do, so trust your instinct whilst performing your due diligence.  

Is your business facing an emergency but current cash flow is limited? 

As we’re currently witnessing across the world, emergencies crop up when we least expect it. One of the key ways to prepare for any unforeseen emergencies that could negatively impact your business, is to set aside an emergency fund. However, this is often easier said than done for companies that are still prioritising getting established.

When you find your business in an ‘emergency’, it is important to act quickly. In these situations, an emergency small business loan will enable you to receive fast access to cash. Once you have obtained the loan, you will have the required capital to start rectifying whatever has gone wrong quickly. 

Are you a seasonal business looking to create a cash cushion?

All businesses face good and bad months. This is particularly the case for seasonal businesses, which will experience higher cash flows during certain parts of the year, despite often trading all year round. 

Having adequate working capital before the busier seasons hit is extremely important to seasonal businesses. More often than not, money needs to be spent on business operations – stocking up on inventory, potentially upgrading business premises, all whilst sustaining staff payroll. Obtaining business finance during off-seasons with lower cash flow could be a very useful strategy to tide your business through the year. 

Do you think now is the right time to expand your business and hire new talent?

If your business is at the stage where you feel you are ready to expand your operations then congratulations, you have exciting times ahead! Whether you are ready to widen your team, relocate to bigger premises, open in new locations or all of the above, you will need significant capital to execute your plans. 

Whilst these ventures are costly, the rewards are plenty, and it means your company is achieving the growth that most owners enter into business for. A business loan used to finance new undertakings lets you take advantage of growth without negatively impacting your business’ finances. 

Are you looking to build your business credit for the future? 

This point particularly applies to startups and small businesses in their first few years of trading. Perhaps you are looking further into the future and planning to apply for long term, large scale business finance. In order to do this, you will need to build your business’ credit file. 

Whilst the rise of the alternative finance market has made finance available to more companies than ever before, it remains true that business owners with a weak or non-existent credit history will still find it difficult to obtain funding.

Taking out a business loan to prove that you can upkeep regular loan repayments on time will help to build your business’ credit for future funding endeavours. 

Make an informed decision when taking out a business loan

We’ve only touched on a few instances that can help indicate that it is the right time for your company to take out a business loan. Knowing your business’ finances inside out will help you to make an informed decision and hit that optimal sweet spot for your business. 

Remember not to act on impulse, take time to do your research because as discussed, a business loan is definitely not something to be feared, but it is something to be sure about!

Photo by Kelly Sikkema