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Looking Ahead: Get Your Loan Before You Need It

In your private life, would you get an auto loan if you weren’t buying a car? Or a mortgage without buying a home? A personal loan, if you didn’t need any cash? The answer to all these questions is probably no. On a consumer level, you only look to get a loan when you need a loan, with the only exception being lines of credit. But that isn’t quite the case for a business owner.

For a lot of entrepreneurs and small business owners, the conventional wisdom they use to manage their personal lives can find their way into how they manage their business.

Getting loans and acquisition of funds is one area where this does not apply.

Most small businesses wait until they need money to try to get themselves a loan. This is a terrible mistake to make. Unlike needing a car and then getting approved for a car loan as a consumer, needing a loan as a business is sort of like applying for a low interest rate and high limit credit card with a sketchy credit history.

When your business is in need for emergency funds is precisely when you will not get approved for them. As a small business, you’re an extremely high-risk customer; most small businesses fail.

If you walk into a bank looking to get a loan because you’ve run into trouble, they’re not going to see it like a rough patch in your business. It’s going to look like the first sign that your business will fail like the millions of other small businesses that end up shutting their doors.

While it seems a little counter-intuitive, the best time to get yourself a loan is when you do not need one. It’s completely reasonable to apply for a loan with the rationale being that you want to have a bit of a safety cushion, or a little extra money on hand to help with day-to-day expenses.

This is contrary to how you’d do business on a consumer level. As a consumer, if you’re making enough money and you’re doing well financially, the last thing you’d want is to incur a bunch of debt “just in case.”

But for your business, it can be the smartest thing you can do and could actually help to save your business, especially now that a lot of financial experts are predicting a possible economic downturn.

Don’t wait until it’s too late to get yourself a loan. If things are going well, go ahead and organize your books, do some research on which lenders might work best for you, and apply for that safety cushion loan.

It can be the difference between weathering a downturn and thriving afterward and failing.

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