One of the biggest challenges facing small business borrowers (and lenders) is that too many business owners wait until the need for financing is critical before they start looking. Taking a more strategic approach, and seeking financing before the need becomes a crisis, could make the borrowing process less stressful and more successful. It’s sometimes said the best time to borrow is when you don’t really need to, but it’s not accurate and could be considered an oversimplification, but anticipating future financing needs early makes a lot of sense.

Planning for Future Financing Needs

While it’s difficult to foresee every potential financing need over the next 12 or 24 months, business owners who take a more proactive approach to planning generally, have a better idea of the new equipment they might plan to purchase, their potential staffing requirements, anticipated expansion plans, or other financing needs—all of which could potentially benefit from additional borrowed capital.

Planning in advance also allows the business owner to fully investigate his or her options to ensure they find the best solution for their current situation. The Federal Reserve Bank of New York has reported that it takes the average small business owner about 33 hours to find a business loan—which can often take place over several weeks or months. Because the lender landscape has changed so much over the last several years, borrowers need to become more aware of their available options and discern which alternatives might be the best fit for their businesses and current needs.

Is the Business Ready for Financing?

Additionally, advance planning gives a borrower time to honestly evaluate their current circumstances to determine if a loan makes financial sense for their business. Is their credit profile in good shape? Is it up to date? Is it accurate? If not, what steps does he or she need to take to make improvements or correct mistakes? Does the business have sufficient cash flow to meet the required periodic payments? Or would the burden of those payments put too much strain on the business?

The current situation will directly impact the financing options a business owner may or may not be able to access today. Evaluating the situation makes it possible to prepare and streamline the process of finding a loan, and increases the number of potential loan options they have available, down the road.

It might also suggest the need to modify the plan and forego financing in the near term in favor of a better and more improved situation down the road.

“If I had that, I wouldn’t need a loan.”

The most successful business owners look at financing in the same way they look at other business tools. Financing should never be used to metaphorically “roll the dice,” but is rather a way to make strategic investments in a business to facilitate growth and increase the value of that business. A strategic and proactive approach to small business borrowing allows the business owner to access borrowed capital before it is a critical “need” and makes it possible to effectively use it to encourage growth. In other words, looking at your financing needs the same way you would look at other resource needs helps avoid making bad decisions in a crisis and allows the business owner to use borrowed capital to fuel growth and build a healthy business, rather than simply survive.

After evaluating your business, if it doesn’t make sense to borrow, a strategic approach allows the business owner to modify plans, postpone big initiatives, or forego expansion in the short term, in order to position the business for greater success a little further into the future.

In reality, if the business “needs” the loan to survive, there are larger issues that should be addressed in a regular strategic planning session; and gambling with a business loan could likely result in kicking the can down the road a little further and creating a bigger crisis in the future. When’s the best time borrow? Before the need is critical and when it strategically makes sense.

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When is the Best Time to Borrow?