When Is It The Right Time To Apply For A Loan?

4 Mins read

When Is It The Right Time To Apply For A Loan? Credit is what drives the business to its highest potential and understanding when it is the right time to insert more funds into the business involves multiple factors.

There are various reasons for which you would need to take a  business loan. It could be to revamp the business, erase financial distress causing trouble in cash flow management, or to launch more products and expanding the business to new territories.

Some business owners believe that it is crucial to take a loan only at the time of financial need, as it seems to be quite intimidating to manage the funds and properly channelize it for business expansion. Infusing funds at the time of a financial crunch is not always a good approach as it might not help you realize the goal of taking a loan.

Understanding Your Business For Loan Requirements

Understanding the phase your business is currently in will help you build a plan for managing funds and organize it for progress. With the influx of supporting policies from the government for micro, small, medium, and even large enterprises, availability of funds is not a challenge, but one should learn about the best time to allocate funds to the business.

The below pointers are helpful in analyzing the need for funds that businesses might require and understanding the type of loan to be availed.

  • The sales cycle of the business and how much it fluctuates in a season
  • Management of cash flow at the time of sales peak
  • Adequate funds to manage the surge in sales
  • Opportunity to launch new products in the market
  • Government policies and economic activity for business support and growth opportunities
  • The risk associated with business expansion
  • Understanding the factors causing financial distress in the business
  • Whether there is a dire need to arrange funds for continuity of business
  • Assessing whether daily operations are impacted by unorganized cash flow

As a business owner, it is absolutely necessary to understand where the business stands. You can contemplate on the factors stated above to analyze the financial position of your business and then go forward to arrange the money.

Assessing The Time To Apply For A Loan

To optimize the daily operations and transactions, every business needs good cash flow. A consistent flow is the only way to stand firm in a highly competitive market. There are situations when an urgent fund requirement becomes crucial to run the business and gain profitability at the time of high demand.

A business that faces a sudden upsurge in demand in a particular season will require more cash for supplies and raw material, and loans are the only medium to sustain at that time. A credit search is usually cumbersome as it involves a plethora of things to be checked and reviewed before applying for the loan. That’s the reason you should have a financier ready to take you through the process without any hassle.

Some common situations you should know to understand the right time to take a loan:

Holiday Season

Some businesses encounter a sudden surge in the holiday season, and it is difficult to cope with the inventory and keep the production line running. Marketing and promoting the products are essential to make the most of the high demand period and for smooth operation.

Moreover, arranging funds is important to ensure the inventory is stocked to the fullest, and your marketing budget is adequately adjusted. Hence, you need to be prepared to take a loan during the holiday season for maximum profitability.

Seasonal Demand

Some businesses have a seasonal demand for goods and services, and during the off-season, there is a sluggish demand. Some companies operate only to profit off of the high demand during these seasons and get good sales out of it.

To be prepared for the growing demand, your business needs to have a credit line to support the daily transactions and operations. A safety net credit is a good source of obtaining funds at a lower interest rate. 

If you operate a tax filing and management firm, you must already be aware of the hectic schedule before the financial year closing and end date of tax filing. Restaurants and food joints also face a high demand for food delivery in the rainy season when people don’t move out of the offices.

The harvesting season also sees a soaring demand for equipment and spare parts. If your business depends on seasonal demand, it is crucial to maintain constant cash flow, and you should consider taking a loan to keep your operations running.

New Product Or Service

Business expansion takes a lot of understanding about the target audience, new geographies, demands for the products, cultural inclination, and many other factors. There is a lot of research to be done to comprehend the success of the new release of products and services. 

On the financial front, it may require setting up a new plant, buying machinery, hiring skilled staff, expenses on research, marketing and promotion of products, purchasing raw material, getting new licenses, arranging funds for contingency, and other important parameters. These activities cannot be carried out without an arrangement of a strong credit line.

You can also try getting investments from angel investors by showcasing your business plan and growth opportunities. But remember that it is a time-consuming and tedious task with no assurance of getting the funds from the investors. It is best to reach out to a financier, discuss the plan, and get the funds required for launching your product or service.

There are different types of loans available with various financiers, and depending upon the business activity, plan, and urgency of the funds, you can choose the right loan product for your business. In emergencies, one should go for a personal loan as it is processed and disbursed quickly with minimal documentation.

Closing Thoughts

Loans are tricky to understand and sometimes intimidating, too. But with a clear understanding of your business and how timely infusion of funds can be profitable, it becomes easier to access the loan at the time of requirement.