August 2, 2016
Business Management  |  6 min read

Why The Best Time to Take on Funding is Before You Actually Need It

by Meredith Wood

As anyone who has ever had to run through the parking lot with a newspaper over her head can tell you, it seems like the only time it rains is the day you forget to pack your umbrella. So often in life, we find we don’t have the one item we need at the exact moment we need it.

Because of this, even if you are flush with cash and not thinking about business funding at this moment, it’s to your advantage to keep your options open in business financing. Believe it or not, the best time to apply for a business loan or other financing is before you need it.

Just as it pays to buy an umbrella before it rains or to look for a new job while you still have one, you stand a better chance of obtaining a small business loan, line of credit, or investment capital when your company is in a strong position financially. Here are six reasons and circumstances that prove why applying for funding before you actually need it is simply smart business.

1. You can prep a “can’t-say-no” application

Perhaps the strongest (and most obvious) reason to secure funding before you need it is to increase your chances of being approved. Right now, if your credit history is solid, your business is cash flow positive, and your bank history shows you’ve been paying all your bills on time, plenty of lenders would be more than happy to finance your business. Later on down the line when money is tight or you are in meltdown mode, you’ll find yourself facing fewer loan product options. Get it while the getting’s good.

2. You’ll have cash on hand to accommodate the rising cost of materials, inventory, or other business essentials

Through no fault of your own, the cost of what you need to operate your business—whether that’s lawnmowers for a landscaping business or fabric for a swimwear shop—may increase. And if faced with that sudden change, it’s highly preferable to have spare funding ready in the wings rather than cutting costs elsewhere or scurrying around at the last minute in order to obtain financing to help you handle the uptick.

3. Cash flow problems can strike quickly and without notice

Even if you have an incredible business plan, monitor your accounts closely, and have seen consistent growth over the past several months or years, political, stock market, and economic changes can all shift without notice and affect your business’s industry—and your cash flow might take a hit as a result.

If you find yourself in a sudden cash crunch, on paper it’ll look like you won’t be as well-equipped to pay back your loan or line of credit. Get ahead of the curve and have that money stashed away now for that rainy day.

4. If you’re lucky, unexpected growth might be lurking around the corner

Unexpected 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.

Put backup plan in place for the financing you’ll need if business suddenly has an upswing while you have the time and attention to shop for the best rates. Then, when growth hits, you’ll be fully equipped to expand quickly and efficiently.

5. Your business is approaching a transition

If sales of your product or service are strong, it could be time to move toward expanding your offerings. For example, if you make and sell a line of coconut ice cream, you could add different types of products such as coconut drinks, oil, or skin care remedies. If you own an auto repair shop, you could add related services such as detailing and windshield replacement.

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.

6. It’s the busy season for your cyclical business

If your business is one with predictable seasons—such as a lakeside cafe or a ski rental shop—you will probably need working capital to get you through slow times. But applying for funding during your slow season won’t present your application in the best light (see reason No. 1 on this list). Knowing your industry, predict potential slow seasons and plan well enough to obtain the necessary business funding ahead of time.

If business is good, then it just might be time to explore your financing options. It sounds counter-intuitive, but what these six circumstances prove is that it’s always better to apply for funding when you don’t need it than when your business is slow or emergency has already struck. Because your financials are strong and you are in a better overall position to receive funding approval, it quite literally pays to be prepared.

Maintaining—and building your access to—favorably-priced working capital before you need it gives you the freedom to grow your business in a comfortable, stress-free way, while keeping your opportunities open for changes in the future.


Meredith Wood is the editor-in-chief at Fundera, an online marketplace for small business loans that matches business owners with the best funding providers for their business. Prior to Fundera, Meredith was the CCO at Funding Gates. She is a resident Finance Advisor on American Express OPEN Forum and an avid business writer. Her advice consistently appears on such sites as Yahoo!, Fox Business, Amex OPEN, AllBusiness, and many more. 


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