Four Signs You're Ready to Apply for a Business Loan

Before you borrow money for your business, you need be confident that you'll be able to pay it back responsibly

Meredith Turits //July 4, 2018//

Four Signs You're Ready to Apply for a Business Loan

Before you borrow money for your business, you need be confident that you'll be able to pay it back responsibly

Meredith Turits //July 4, 2018//

You've heard the old adage in one form or another that capital begets capital – the more your business spends, the more paths your business has to earn. That's great – but doing the things that will make your business more in the long run, like expanding to a new location or purchasing more inventory to keep up with demand, cost money up-front.

If you don't have that cash, rocketing your business to the next growth stage is challenging. So, for a lot of business owners, that's where applying for a small business loan comes in.

You can't just fire off an application for a business loan when you're low on funds or want more money, though. You need to be ready for it – both in the lifecycle of your business, and in your financials as a business owner, too. Taking out a business loan inevitably adds cost to your already full plate.

It may sound counterintuitive, but before you borrow money for your business, you need be confident that you'll be able to pay it back responsibly.

Here are four signs you're ready to apply for a small business loan:


You're likely already familiar with how much easier it is to get a great consumer credit card with excellent rewards when your personal credit score is solid. You won't be surprised to hear, then, that the same goes for applying for business financing. The higher your business credit score, the more options you'll likely have available.

That doesn't mean that funding options aren't available to business owners with bad credit. They certainly are – Some small business lenders offer business line of credit products that don't involve a personal credit check, for instance, if you're really in a crunch. But excellent business credit means better financing options across the board.

You'll be a better candidate for the most sought-after long-term business loans, like SBA loans and other term-loan products, that are often the most helpful in allowing businesses to grow. And because strong credit is a signal of your trustworthiness as a borrower, you're more likely to get favorable terms like the lower interest rates and longer payback periods.

Additionally, when you have bad business credit, you may be more vulnerable to shady practices – like certain small business loan brokers that claim to cater to business with bad credit. Loan brokers can often be quite helpful, but the predatory ones can usually sense when you are desperate for business financing.

If you can, hold off on applying for financing until your business credit is in tip-top shape. You'll be more likely to avoid sketchy loan situations and get into a great business financing solution that actually helps you grow your business, not sink you further into debt.

In the meantime, look into business credit cards specifically helpful for business owners with bad credit. Applying for one, using it responsibly and paying off your balance in full each month is the best way to establish credit history and improve your business credit score – working toward that small business loan you're looking for.


If you have a seasonal business, you're used to the ups and downs. Although the high-highs can bring in a great deal of cash during your busy time of year, your numbers throughout off-season can comparatively look glaringly low.

If you live in a beach-side town and your business caters to tourists, for example, you'll likely make most of your year's earnings during the warmer months. Industries that depend heavily on a seasonal influx of customers naturally have quiet periods – and as long as you're prepared to handle those, that's OK.

Applying for a business loan while your numbers are great and your bank statements look robust as possible is an excellent way to not only present a strong picture to lenders, but also ensure all your expenses will be covered during the off-season. Banks and other lending institutions are more likely to respond favorably to an application from a business that is currently doing well, rather than one where financials paint a picture of revenue on the decline.


A sudden spike in popularity seems like a dream for any small business owner – that is until, of course, customers are clamoring for products you can't send. If you have too many orders to fill and no stock to fill them with, or not enough hands on deck or not enough hours in the day to pack everything to ship out, demand eclipsing supply can quickly turn into a nightmare.

Keeping up with skyrocketing popularity means having to cover the cost of inventory or adding another team member to pick up the slack. But you might not be able to cover these adjustments with your current cash flow.

In this situation, you know exactly where you'll be directing any financing you'll get and how it'll go to use – so apply fo a small business loan. If demand is only increasing, you can feel secure knowing you'll continue earning more over time, meaning you'll also be able to make your regular loan payments. Growing demand is an opportunity you often can't afford to pass by, and with the right small business loan, you'll be able to cover your costs now and sustainably pay them off.


One of the most telling signs that it's tie to apply for a small business loan is simple: You're quickly running out of space to successfully run your business.

Although the idea of a more glamorous office sounds nice, we're speaking much more practically here – can you actually not execute on day-to-day operations without more physical square footage? This could be happening in conjunction with growing demand. Maybe you need more space for manufacturing or inventory, or somewhere to house the new employee you're bringing on.

Of course, moving into a new location (or even expanding your current space) can get expensive. Many lender offer loans meant to be used for fixing assets, including SBA loans. If you know that a bigger space will mean more room to grow and open doors to more opportunities, now is definitely a good time to consider applying for a small business loan.


You might be impatient to apply for a small business loan before you're actually ready. When you're an entrepreneur, every opportunity seems urgent and fleeting – you want to seize them now.

But waiting until you're as financially stable as possible could make a massive difference in the future of your business. You'll be more likely to be approved for a loan in the first place, get better terms making your capital less expensive, and you'll be better set up to pay it off in the future.