When Is the Best Time to Consult for a Bank Loan?

Small businesses often have thin profit margins compared to larger companies and corporations, so loans are part and parcel of many small companies. You may need a loan if you need the capital to start, replace failing equipment, tide yourself over when times are lean, or clients fall behind in their payments. If timing is important, you want to be prepared; otherwise, your business could suffer dire consequences.

When It Comes to Business Loans, Plan Ahead

You don’t want to consult a bank about a loan too early regarding new businesses. Instead, you want to devise a financial plan that shows your idea is viable and not just a pipedream. Without a plan that shows reasonable expectations for expenses and growth and contingency plans to protect your business in lean times, you may have to push back or cancel your grand opening because you’ve failed to secure a loan.

To ensure your business plan is secure, consider talking with financial advisors and other mentors in the industry.

They can introduce you to the various loans provided by the Small Business Administration or other programs you might qualify for. Experienced business partners or mentors can also help you make sense of the myriad rules and regulations to which your new business will be subject. Of course, if you’ve got experience financing, starting, and running a business, you might not need to rely on others’ help.

Your plan will continue to serve you once your business is up and running. For example, it might outline when you need to add more staff, space, or stock. The repair, replacement, and upgrading of equipment can also be included in your business plan, which should be updated to reflect your small business’s realities (expenses, growth, etc.). This gives you a heads up about expected future expenditures. Instead of waiting for the last minute, you can plan, allowing you to prepare and apply for a small business loan or potentially raise funding without needing a loan at all.

Don’t Wait to Consult the Bank

Still, unexpected expenses will arise periodically. If you need a short-term cash influx or your business is heading toward financial trouble, the sooner you consult a bank about a loan, the better. This gives you a chance to take out the loan before your profit or credit standing declines, which might make it impossible to take out a loan even a few weeks in the future.

Keep in mind that a loan isn’t immediate. You don’t want to find yourself desperate for a loan that will keep the lights on during a Friday afternoon meeting. You need to consult with the bank and provide financial records. This step requires a series of in-person, telephone, fax, or email communications. Prepare yourself to put in at least 30 hours of work, which can be split over weeks or months, not days.

If you prefer to shop around, which may be necessary if a bank offers a loan but with terms that don’t work for your small business, give yourself plenty of time to find the best terms for a loan. Although you may only officially apply for a loan from one bank, discussing loan options with multiple institutions will take up a significant portion of your time.

Of course, you still have a business to run while waiting for a loan. Consulting with a bank early gives you time to continue providing the products, services, and support your clients rely on and ensure your staff has everything they need to complete their jobs. Running a business and applying for a loan can be stressful enough as it is, so you don’t want to add to that stress with a time crunch.

What to Do When Your Loan is Declined

Consulting with a bank informs you of your ability to take out a loan. You don’t want to assume that doing so is an option when it is and find yourself between a rock and a hard place. Although it may be frustrating to learn that a bank doesn’t think you can repay a loan, planning gives you a chance to consult with other financial providers, just like you might when taking out a personal mortgage or new auto loan.

If you’ve declined a loan, you can also consider alternative forms of financing. For example, struggling businesses might consider reselling their invoices to a third party to recoup the costs immediately instead of waiting for 30, 60, or 90 days for the payment to come due. This is known as invoice factoring, and it could be the secret tool in your arsenal to keep your business running smoothly as you get started or worth through financial hardships.

Do you have any other advice for readers who are seeking a loan? Perhaps you have questions about the process or other benefits of the factoring company! Leave a comment below to start a conversation.

Sandra Johnson

Sandra Johnson

Sandra Johnson was a few years out of school and took a job as a life insurance agent in California, selling coverage door-to-door for Prudential. The experience taught her about the technical components of insurance and its benefits for individuals and society, as well as the misunderstandings people often have about insurance. She has over ten years’ experience in the insurance industry, having worked as both a Broker and Underwriter, assisting clients across a broad range of industries. At Insurance Noon, Sarah diligently gathers all the required information and curates up pieces to provide meaningful insurance solutions. Her personal value proposition is to demonstrate a genuine interest in always adding value for clients.Her determined approach to guiding clients has turned her into a platinum adviser to multiple insurers.

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