When to Get a Loan for Your Small Business

You developed your idea for opening your own business. You’ve done your homework, created a solid business plan, drafted a budget, filled out the required papers to incorporate and now you’re ready to launch your company. All that’s left now is getting the funding you need.

Raising the capital to get your venture off the ground can seem like a daunting task. Luckily, there are many types of small business loans available, from SBA loans to equipment loans and more. But before you start thinking about loan terms and choosing a loan amount, you should make sure you're ready.

So, when is the best time to visit a traditional bank or your local credit union and start working your way through the business loan application process? The answer isn’t as simple as it might seem.

Before you start dotting each “i” and crossing every “t” on your application paperwork, consider these five important concerns:

1. Find your groove first:

Owning a business is a big step — but also a very rewarding one. You get to set your own hours (theoretically), make the big decisions and control when and how you conduct transactions. The excitement of starting a business is real, but there’s also a lot of hard work involved.

If this is your first business, you’ll need to get adjusted to the reality vs. the dream. A new business may require long hours, tedious tasks and lots of trial and error in the early stages. You may have to research federal, state and local taxes or look into insurance options for your employees. So, it can be a smart move to wait until you’re “in the groove” before taking on a loan.

2. The early bird may not get the loan:

Yes, applying for a loan is a simple and relatively straightforward process. However, getting the funds you need may not be. As a small business owner, you’ll typically need a strong credit score (we’re talking business credit AND your personal credit score), some cash flow and a solid revenue stream.

A place that’s just starting out may not meet these requirements. Some financial institutions, like Desert Financial Credit Union, may also set a minimum length of time that your company has been in business before they will consider loaning you cash.

3. There may be an easier way to kick start your company:

Getting business financing isn’t the only way to fund your new business. Many start-ups and online shops have used crowdsourcing sites like GoFundMe and Kickstarter to fund their business projects. Indiegogo is especially popular with entrepreneurs because, unlike Kickstarter, you can keep the portion of funds that you raise regardless of whether you meet your total goal.

After your initial launch, there may be opportunities to increase your cash flow with invoice financing, where you borrow money against the amounts due from your customers. This depends on many factors, including the type of company you run. You may also want to consider alternatives to pricey advertising and equipment purchases, such as using social media to get the word out and leasing or renting what you need.

4. Consider starting on a shoestring:

While it might be tempting to take out a business loan before you even get started and stock up on supplies, that isn’t your only option. Many entrepreneurs, especially first-time business owners, operate on a “shoestring” budget in the beginning.

Remember, Steve Jobs co-founded Apple Computer in his family’s garage. Starbucks was founded with less than $5,000. And popular internet furniture retailer Wayfair started as a tiny home-based business. Think about creative funding alternatives such as merchant cash advances or credit cards if you get stuck and need more cash flow.

5. Profits aren’t immediate:

It may take a while before you start seeing monetary returns on your new venture. In some industries, such as the restaurant business, it may take several years before you see annual revenue in the black.

You may want to have steady working capital (money for day-to-day operations) before taking on too much debt. While some entrepreneurs choose to take out loans in their company’s first year, this comes with more risk. A fledgling startup may not be equipped to handle the loan payments that come with such a step, at least until profits start flowing.


Once your business is up and running and you feel confident in your ability to lead, manage operations and make a profit, it could be time to consider a business loan. Most banks and credit unions have dedicated business loan specialists who can talk you through the process to see if their business funding options are right for you.

In addition to loans, they may offer business checking and savings accounts, business credit cards, treasury management services and even insurance or investment options to help your company’s funds grow.

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The material presented here is for educational purposes only, and is not intended to be used as financial, investment, or legal advice.