When to Apply for a Loan?

Find out when it’s best to apply for a small business loan.

You have an idea for a new business, and you were sure it would succeed. After six months of hard work at your new business, you know a little capital would go a long way in helping your business grow. But ideas alone won’t convince a lender that you’re worth betting their money on. How do you know when it’s time to take your bright ideas from the drawing board to the boardroom?

You understand the types of loans available.

There are many types of loans available for small businesses, including flexible loans such as a business line of credit or business credit card. If you’ve done your homework, you’ll know how much revenue your business generates, and whether you fit the parameters of a “Small Business,” as defined by the federal Small Business Administration. SBA loans are often a solid choice for small businesses, but not all business will qualify.

Other online business loans such as Lendio or BlueVine offer unsecured business loans to business of all sizes. They too will have minimum requirements but you won’t need federal recognition.

You’re aware of your own history with money.

Being self-aware is important to starting any business: how much time are you devoting to your business each week? What is your work ethic like, and when are you most productive?

It’s also important to know your credit history and current credit score. Being able to own up to past mistakes might mean calling credit bureaus to negotiate previous mistakes. This can help boost your score slightly, and it helps you to understand what will improve that score going forward.

A credit score is the lender’s way of measuring if you’re reliable with repayment, so make payments on time. Honesty with yourself around your ability to repay is crucial to a successful loan application.

You have a business plan, and it’s solid.

A business plan is more than a brief outline.

It takes into account your cash flow and how you have made your business sustainable. A solid business plan is a document that guides a business owner to make good decisions when the unexpected inevitably arises.

Any institution who provides business loans wants to be sure that the business owner can repay it. Gathering the appropriate paperwork—including your recent tax history, current bank statements, and current expenses—helps you make this case to the lender and get your facts straight before you apply for the loan. Business lenders often require six months of financials before they’ll consider your application, so if you haven’t been in business yet six months, you might have to dig a little deeper before reaching out for a business loan.

You know the price of the loan and are prepared to pay it.

There’s no such thing as free money. A loan comes at a price: the interest rate at which it is lent. Knowing how much you can afford is just like any other business expense on your list: the same as any other equipment, payroll costs, or technology fees. Even with an SBA loan at a low interest rate, the loan has a price. Factoring this cost into your business plan shows lenders that you’ve considered every angle.

You’re prepared to reapply.

So, you’ve given your business plan a lot of thought, gathered your six months of statements and documentation, and applied for a loan. If it’s rejected, you should be prepared to find out why, and reapply. Perhaps it was a technicality: a missing piece of information. Perhaps the lender perceived a hole in your plan that it would serve you well to fix before going deeper into your plans.

Remember that lenders make money on loans; they don’t want to deny them. They just want to be sure that the loan will be repaid. When you know your business is solid and ready to grow, you can reapply for the loan. Ask questions, get answers, and modify your business plan to get approved.


Joe Schwartz | Loans Editor