5 Ways To Know You’re Ready for a Small Business Loan


Getting a loan for a small business is a big step in any business owner’s journey, and it shouldn’t be taken lightly. Many individuals have gotten into trouble with debt because they took out more than they could handle and neglected to do the proper research, so don’t let it happen to you and your company. If you’re feeling like you’ve hit a wall with your company growth, here are five ways to know you might be ready to pursue a small business loan.

  1. You Have a Specific Idea in Mind

It’s easy to say a chunk of cash would solve all your problems, but a business can become a money pit quickly if you’re not careful. If you’ve taken the time to put together a business plan, pointing to specific ways a loan can benefit your company, you may be ready to seek extra funding. For example, knowing the latest model of your production equipment will help you meet the booming demand you’re struggling to meet otherwise is a good indication the purchase is necessary, and it’s time to check out resources like Lendio. On the other hand, asking for money for a big marketing campaign when you haven’t done enough testing with your audience across platforms wouldn’t be wise.

  1. You Can Make Plausible Predictions

If your company has unpredictable cash flow or has experienced long periods of unpredictable cash flow in the past, you’re probably not ready for a loan. Lenders want to see that you can make realistic predictions for your company’s cash flow that are backed up by data from previous years. Plus, seeing that data helps to make you more confident about making payments. This process will look different for companies that experience seasonal cash flow changes due to industry standards, like those in construction.

  1. You Have Collateral 

Lenders also like borrowers with significant collateral to guarantee a loan. It’s rare for business owners to find unsecured loans with favorable rates, if they can get them at all. You can use personal collateral, but company collateral can help you protect personal assets. This might look like property or valuable equipment the bank can assess and later sell to make back money if you can’t pay. If you’ve been wondering about whether to rent or buy equipment in the future, this is important to keep in mind.

  1. You’ve Spoken With Experts

If you’ve got tunnel vision on all the wonderful changes a loan can help you make for your company, you may want to take a step back and consult with some financial experts. They can look over your company’s data and portfolio of assets and confirm whether or not your numbers are healthy enough to support a significant monthly payment. They can also help you decide on lenders to pursue or put together a stronger application. This may be another investment for you, but it can save you a lot of money and complications down the road.

  1. You Know How the Loan Will Be Paid

You’re more likely to feel comfortable signing off on a large sum of money if you’re confident in knowing how it will be paid off every month. Good financial data is a plus, but what happens if you suddenly can’t pay? Does the business have savings you can dip into, or will you be paying out of your own pocket? For how long would you be able to do so? Having a contingency plan in place will make facing an emergency that much easier, but it’s important to be comfortable with the percentage of profits that will go directly toward your debt.

A business loan can make a huge impact on small businesses, but if you want the impact to be positive, you need to plan ahead. By being realistic with yourself and your personal and company finances, you can improve your business confidently and with minimal stress.

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