Imagine you’re a specialty cupcake business popular for supplying graduation parties and weddings. Because July is when these busy seasons are over, you find yourself short of supplies and needing to pay payroll for employees who worked overtime in the previous months.

You could take out a business loan to restock and refresh. But, what if you had taken out the loan in April, before your busy season? You could have prepared better for the rush, resulting in possibly double the sales and profits!

This example of seasonal financing shows how the timing of business financing matters for your survival, growth, and possibly marketplace dominance. Read on to learn the “when” of borrowing, an important consideration that’s just as vital as the “why,” “how,” or “how much.”

The hidden cost of poorly timed funding.

Knowing when to get a small business loan requires you to also know your business (and the market you’re in) very well. If you time it incorrectly, you not only take on the risk of poor liquidity, but you could miss out on the chance to grow. This opportunity cost can include missing out on supplier discounts and bulk inventory, as well as not being able to fill more orders.

Poor timing can also look like taking cash before it’s truly needed. You then pay interest, which can drain cash reserves over time – adding a different sort of opportunity cost to the mix.

Both scenarios are less than ideal. Financing should always match your business strategy, balancing cash flow needs with growth opportunities.  

Seasonal trends: When demand predicts capital needs.

If you don’t consider your business a seasonal one, you still have historically busier times of the year. Looking back at your sales data helps you determine when to plan for your next loan. If you’re typically busier in March (even by a small margin), you can ramp up by securing business growth funding for all kinds of expenditures.

You can use it for inventory, hiring, much-needed maintenance or repairs, marketing, or product development and testing. Any purchase that could make peak weeks more successful should be considered. A lawn care business, for example, may use loan funds to tune up all mowers and trimmers, put new tires on trucks, and take out ads promoting a new service, so they are ready when customers call. (This is also when you may learn you need to replace gear through equipment financing.)

Milestone-based timing: Growth triggers that signal it's time to borrow.

Seasonal fluctuations aren’t the only things to consider. These additional markers could mean you’re in a good position to invest through a business loan.

  • Consistent revenue growth: Have you increased sales and earnings month over month for a set period of time? If so, you’ve proven people love what you sell, and capital can help you sell even more.
  • Turning away work: Have you stopped taking orders or closed your retail location because you’re out of inventory? This, as well as outgrowing a space or using all your available equipment, could be limiting your growth.
  • New contract or purchase order: Did you get a big, new client or retail account? You may need a cash infusion to support ramped-up operations and expand capacity.
  • Additional locations: Are you expanding to new areas? You likely can’t purchase or lease additional real estate without a loan. (Renovations are also capital-intensive endeavors.)
  • Hiring key staff: Do you need additional or specially-trained talent to get you to the next level? A business loan may ease hiring costs and help you onboard without budget issues.

Operational signals: Internal signs you may need financing.

It’s also sometimes necessary to fix problems with cash, and a loan can often be the fastest way to ease liquidity issues and get back on track fast. Loans are especially useful in these situations:

  • Addressing months of poor cash flow, where a short-term loan or line of credit can shore up gaps in receivables (rather than a faulty business model).
  • Replacing worn-out equipment that has slowed down production and may be expensive to repair.
  • Fixing inventory bottlenecks from sold-out inventory due to high demand.
  • Declining customer service due to outdated support systems or understaffing.

Common mistakes: When business owners get the timing wrong.

What if you’ve looked at the signals and decided on a business loan? You’ll still want to be sure you start the process in plenty of time to get funds and get to work. Business owners who wait until they are desperate may not use the money as wisely; the pressure to “fix things now” often prevents them from researching and implementing solutions well.

Other errors include:

  • Borrowing without a plan and a clear idea of what your debt (including interest) will cost you
  • Not aligning your loan with the revenue cycle and having to repay it during low cash flow months

It may be helpful to consult a business advisor with small business lending experience before starting the process.

Creating a loan timing strategy.

Even if you don’t see yourself needing a loan for a long while, having a “what if” plan in place can be useful. Take these steps to help you anticipate when a loan may be useful, so you’re better prepared when the time comes.

  1. Map out your annual business cycle, noting high and low earning months, operational peaks, and common bottlenecks (like hiring).
  2. Forecast cash flow and expenses, paying special attention to those that may be lowered through special bulk or promotional discounts.
  3. Define the purpose of the loan. Is it for hiring? Equipment? Restocking inventory?
  4. Work backward from the need date to ensure you get the funds on time.
  5. Get pre-qualified in advance, through lenders most likely to give you the rates and terms you want.

Need some extra help forecasting cash flow? Read our guide to cash flow management!

Lendio can match you with the small business loan best suited for your business's ebb and flow. Get pre-qualified now for maximum ROI later.