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When Is the Best Time to Take Out a Small Business Loan

When Is the Best Time to Take Out a Small Business Loan

Business Loan – Most businesses will need a business loan at some point – whether you’re looking to finance a start-up or inject some capital into a long-standing venture.

The tricky part for many companies isn’t necessarily getting a loan but deciding on the correct timing.

On the one hand, you need to demonstrate what you’re using the business loan for, and on the other, you don’t want to leave it so late that the cash doesn’t arrive in time to finance a lucrative business opportunity.

In this guide, our mortgage brokers explain some of the key decision-making factors to help you determine the best time to apply.

Common Reasons to Apply for a Small Business Loan

One of the most common reasons to apply for lending is to start a new business, paying for things like:

  • Renting or buying office space
  • Purchasing equipment
  • Investing in stock
  • Covering initial staffing costs

Finding new business lending can be complex, so we’d recommend working with a broker to determine what security you could offer and structuring an exit strategy to be confident you can repay the loan in a good time.

Other typical reasons to apply for a business loan include:

  • Expanding an existing business into a new location or launching a new product.
  • Raising finance to retain existing staff or hire new workers.
  • Buying equipment or stock – it’s normal for businesses to have busy periods where they make the bulk of their sales, so it can be essential to take out a business loan to cover the purchase cost during quieter trading months.

Commercial business loans aren’t as rigid as personal (regulated) loans, so you can also take out a business loan for a wide range of reasons we haven’t covered here.

For example, if you have an exciting business prospect, such as buying out a competitor or purchasing assets from a liquidation sale at a heavy discount, you could use a loan to do so.

The best option is to prepare a business plan and show how the loan will improve your profit and turnover, so the lender can see how the funds will be spent.

Bad Reasons to Apply for a Business Loan

Just as we’ve run through some good reasons to opt for business lending, there are some circumstances where it might not be advisable.

If you’re under credit pressure and have exhausted all other lines of credit, a loan won’t necessarily solve the problem.

Many businesses also consider a loan in a panic to consolidate loans, which can be a solution – but without independent advice, it might result in a worse position than you are already in.

Alternatives could include refinancing or remortgaging, which won’t plunge the business into further financial difficulties.

For example, suppose you have an existing commercial mortgage. In that case, we may recommend refinancing at a higher value to consolidate other debts, spreading the repayments over a longer period and reducing your monthly outgoings.

These solutions can avoid paying higher interest charges on a short-term, unsecured loan and resolve your financial pressures without exacerbating your debt exposure.

Getting the Timing Right for Your Business Loan

The timing makes a difference. If you apply too early, and before you’re ready to spend the money, you’ll still need to start making the repayments and incurring interest in advance of that expense being required.

Applying for a business loan too late can make it tricky to cope with financial strain or mean that you’re forced to try and come up with other ways to release the finances needed.

Ideally, you want to apply for a business loan just ahead of the moment when you need the capital to invest in the business – giving sufficient time to settle the transaction but without starting to pay interest prematurely.

It’s not always easy to make a quick decision about whether the timing is right for your business loan application. A lot depends on factors such as:

  • What sort of loan you want to apply for (and how long do they typically take to arrange).
  • Your current financial position and any pressures on the company.
  • What you’re planning to do with the loan value, and whether there are deadlines to consider.

Generally, a loan should be something you think about when you have breathing space to compare alternative financial products, time to research the rates on offer, and capacity to prepare a business case to show how you’ll use the funds to benefit the business.

Any last-minute rushed decision is usually best thought through, so a business loan in response to a sudden credit crisis may not be appropriate.

Please contact Revolution Brokers on 0330 304 3040 or via email at for a no-obligation chat about the type of [business loan] you might need and when the optimal time is to apply.

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