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Why It’s Important You Apply for Business Funding…Before You Need It

You may not need business funding right this moment, but when it comes to financing your business, it pays to keep an eye on the future. Why? Because the best time to apply for a business loan or seek other financing is before you need it.

Just as it’s smarter to seek a home equity loan while you’re employed than right after you’ve been laid off, or to look for a new job while you still have a job, you stand a better chance of obtaining a small business loan, line of credit or investment capital when your company is in a strong financial position. Here are seven early “warning signs” that your company may need business funding down the road:

  1. You’re having cash flow problems. Without adequate cash flow, you won’t be able to pay back your loan or line of credit. As a result, most lenders won’t even consider financing your business. Monitor your cash flow weekly or even daily so you can spot downward trends and act quickly.  Prepare financial forecasts and monitor them to make sure you’re achieving your goals.
  2. The cost of materials, inventory, supplies or other essentials for your business is rising. Through no fault of your own, the cost of what you need to operate—whether that’s lumber for a construction firm or mozzarella cheese for a pizza parlor—may rise. If so, you’ll either need to cut costs elsewhere or obtain business funding to help you handle the increase.
  3. The economy and/or your industry seem to be headed for a downturn. During the “Great Recession,” business loans became harder than ever to get. If you spot indicators of hard times on the horizon for the economy in general—or your industry in particular—move quickly to obtain a cash cushion.
  4. You’re having trouble paying your bills on time. Does this problem sound familiar? You make a product or provide a service, send the customer an invoice and wait months to get paid. In the meantime, your bills come due every 30 days. If the lag time between when you get paid and when you need to pay vendors is leaving you short, consider applying for a working capital loan to give you the working capital you need before you damage your business credit rating.
  5. You’re growing rapidly. Growth is great, but it can lead to problems if you don’t have the working capital on hand to buy needed equipment, inventory or materials to fulfill orders; expand to a bigger location; or hire staff to service your new customers. Before you set out to expand your target market or pursue big customers, develop a plan for what you’ll do if your efforts succeed. How much money will you need, and what are the best options for getting it?
  6. Your business is approaching a transition. Any big change to your business, such as adding a new product or service line, opening a second location or franchising the business concept, creates a need for additional working capital. Build financial planning into your transition plan and seek the business funding you need well in advance.
  7. Your business is seasonal or cyclical. If your business is one with predictable seasons—such as a children’s swim school or a skiing equipment website—you will probably need working capital to get you through slow times. Knowing your industry, you should be able to predict potential slow seasons and plan well enough to obtain the necessary business funding ahead of time.
Rieva Lesonsky

Rieva Lesonsky

Contributor at Fundera
Rieva Lesonsky is a small business contributor for Fundera and CEO of GrowBiz Media, a media company. She has spent 30+ years covering, consulting and speaking to small businesses owners and entrepreneurs.
Rieva Lesonsky