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.


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 and prepared to complete the strongest possible business loan application.

Here are seven early “warning signs” that your company may need business funding down the road.

7 Reasons to Apply for a Business Loan Before You Need It

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. Apply for a business loan before your cash flow is at a point of no return.

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. By keeping a pulse on your cash flow, you’ll know exactly when things are going south.

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—might rise, leaving you unable to consistently afford the materials your business depends on.

If so, you’ll either need to cut costs elsewhere or obtain business funding to help you handle the increase. But to make sure you’re not in a total bind down the line, pay close attention to the market and your industry to know if you’ll need financing to help cover inventory or materials in the future.

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. Loaning to small businesses is an inherently risky move, so banks tightened their credit to protect themselves.

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 before it’s too late.

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 or invoice financing 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—all things you need to grow.

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? These are the questions you need to answer before you desperately need a loan to manage business growth.

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 or manage the increased traffic of the peak season.

Knowing your industry, you should be able to predict potential slow and high seasons and plan well enough to obtain the necessary business funding before that time of year rolls around.


When it comes down to it, the best time to apply for a business loan is when you’re prepared to do so, you’ve thought carefully about why you need the financing, and you don’t desperately need it.

Emergency business loans do fill a need for small business owners in an absolutely cash crunch, but it’s always best to play the long-game with business financing—you’ll get the best terms and rates possible for your small business.

Rieva Lesonsky

Rieva Lesonsky is a contributing writer for Fundera. 

Rieva has over 30 years of experience covering, consulting and speaking to small businesses owners and entrepreneurs. She covers small business trends, employment, and leadership advice for the Fundera Ledger. She’s the CEO of GrowBiz Media, a media company specializing in small business and entrepreneurship. Before GrowBiz Media, Rieva was the editorial director at Entrepreneur Magazine. 

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