Should you take out a small business loan now? 6 things to consider – Funding Circle

Getting a small business loan can put your game on an upward trajectory—but only if you get it at the right time.

Getting a loan at the right time can help you increase your income and reduce your stress. Depending on how you use your loan, you can have more flexibility, operational flexibility, and the freedom to invest in growth. It’s your business and take advantage of it.

On the other hand, getting a loan at the wrong time can put you in a difficult position. Not only will you risk adjusting your finances and taking on more debt than you can handle, you can also risk your business credit if you can’t repay your loan on time. .

That’s why the mind is not alone how come you need a loanbut when it is reasonable to find one. So, how do you know the right time for your business? We break down everything you need to know below.

As you think about your actions and goals, pay attention to these six things:

1. Financial business

The financial health of your business is the foundation of your operations—and the most important factor in deciding when to get a loan. Before you apply for a loan, you should find out if you can afford the loan (and for how long), when you can repay your loan, and what degree the loan will help to expand your activity.

To find those answers, it’s worth looking at me:

  • Debt service distribution plan (DSCR): A DSCR below one means you don’t have enough money to pay your debts in full, while a score above one means you have enough income to pay off your debt. Calculate your rate here.
  • Sales and earnings in the last 12 months: Consider how stable your sales and revenue numbers are, then compare them to your profit and loss statements from the past 12 months.
  • Current cash flow and spending history over the next 12 months: Think about how much flexibility and consistency you will have with your cash flow.
  • Sales figures over the next 12 months: Get a clear picture of your sales and income in the coming year to see how you can generate more money without additional expenses.
  • credit score: It is very important Check your business and personal scores to know where you stand. Without good credit, you may not be able to get good loan terms and a cheap interest rate.

When you get money, you must have enough money to pay on time and in full, but you don’t need to have the highest financial strength to get a loan (although get a loan if you are successful has its benefits).

If you have strong sales, for example, that is a good sign that you will be able to earn enough money to pay off your loan. However, if you have a spotty or uneven inventory, you may want a loan to invest in additional inventory or improvements. products to increase your sales.

That’s why your business finances are only the first piece of the puzzle. You should also consider your immediate operational needs and long-term business goals.

2. Operational needs and long-term goals

Most people take out business loans for one of two reasons: to secure a job or to invest in growth. If you have decided to apply for a loan nowwhat do you put the money in?

Start by thinking about your current activities, think about the things that will help you succeed every day. Maybe you want a more stable cash flow to pay for utilities or a new inventory system to simplify your inventory management. Or maybe you need enough money to spend complete your survey before it gets busy.

Next, consider the short and long term goals of your business, then outline the steps you need to take to achieve those milestones over time. You may want to hire a marketing agency to develop your sales, for example, or you may want buy a second business or expand your product line.

Once you know what you use a loan for, you can think about the most appropriate time.

3. Business information and market research

Your business data gives you insight into your current situation and growth potential, while market data gives you a better understanding of your customers and your competitors. When you look at aggregate data, you’ll get a better sense of where customers are spending their time and money, what the demand for your business is like, and whether or not there is rapid growth in your corner of the market.

For your business information, focus on collecting and analyzing:

  • Marketing information, such as your website, social media, and email analytics
  • Customer information, such as customer retention rates and customer reviews
  • Sales data, as your guide to conversion rate and annual sales growth

For marketing information, be sure to check out:

  • Buying habits and buying habits
  • Industry news
  • Discriminate competitors

4. Economic conditions

The economy has a big impact on the type of loans and interest rates you can qualify for, so it’s important to think about what’s going on at a high level. It can help you stay up to date with the news and review quarterly small business reports make a specific decision about funding.

At the moment, for example, the rise in interest rates complicates the question of when to get a business loan. By the end of 2022, The Federal Reserve raised its interest rate to 7.5%. For some businesses, that rate doesn’t make borrowing capital right now; for others, the benefit to their bottom line can outweigh the long-term interest costs.

5. The type of loan and loan provider

The financial institution and lender you choose will play a significant role in your loan experience—and outcome. Not only do different loans serve different business goals, they also have different terms and repayment periods.

Some lenders have specific application requirements and application guidelines, while others are more flexible. Some services only accept applicants with a lot of credit, while others are more accommodating.

Be sure of yourself Explore your loan and service options thoroughly to see which timelines, experiences, and terms are most appropriate for your business. Here are some common loan types to consider:

  • SBA loan: SBA loan have more features and offer cheaper interest rates than online loans, but they have stricter requirements and longer repayment periods.
  • Business loans with online financing: A term loan with an online lender they give you a cash advance in a matter of days, and often have flexible terms and repayment plans.
  • Business lines of credit: Business lines of credit they are good solutions to temporary income.
  • Equipment Financing: Equipment financing give you money to buy or lease new equipment or technology to improve your business.

6. Business resources

Your business’s resources are more than your money—it also includes your time, team, and equipment. There is no point in borrowing money to earn interest except you have the means and bandwidth to execute your plans effectively.

When evaluating your resources, consider your:

  • Time: How full is your cup right now? Does the process of applying for a loan and disbursing money take a long time, or does it add more stress and to-do than you can handle now?
  • Me: Do you have enough people to help you implement your post-loan plans? For example, if you need a loan to buy and renovate a new home, do you have enough employees and contractors willing to help with that effort?
  • Tools: Do you have the tools, technology, and connections you need to achieve your goals?

The bottom line: there is no exact formula that will tell you when to take out a loan. The decision to get a loan is based on factors, such as your finances and current market information, as well as the circumstances. specifically, such as your growth plans and business resources. However, there zero special signs can point you in one direction or another.

These are the signs that it may be the right time for a loan

  • If your DCSR is better than one
  • If you have big growth plans and the resources to make them happen
  • If an amazing business opportunity comes up
  • If sales increase and you want to expand
  • If you need temporary cash and you have a plan to pay off a loan
  • If you have good credit you can secure better loan terms.

Signs you should put in a loan for now

  • If your DSCR is one or less
  • If you have bad business credit
  • If you are a new business and need to establish your business credit, sales, and cash flow
  • If you are not sure if a loan will help you achieve your goals
  • If you are struggling to make monthly loan payments

If you’re ready to take out a loan now, Funding Circle is a flexible, quick option. We are time loan business let you borrow anything from $25,000 to $500,000 if you qualify, with repayment terms from six months to seven years. The application is quick and easy; just fill out basic information and upload a few documents, and you’ll get a response from our team within a day.

Apply for a loan todayor check out our other financing options.

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