How can you know if it is time to apply for small business financing?

apply for small business financing

At some point in the life cycle of a business, the need for additional resources emerges as a result of multiple scenarios, including a sudden spike in sales or the need to finance an ambitious expansion project.                                                                                                                                                     When that happens, business owners must analyze their alternatives to select the financing instrument that offers the most flexible and advantageous conditions.                                            Nowadays, companies like Camino Financial offer small business financing as a feasible alternative for businesses seeking to fulfill their cash needs. In the following article, we will be discussing some of the most common reasons why entrepreneurs should consider apply for small business financing.

Higher sales

The first and perhaps most pressing reason to find more resources for a company is a sudden spike in sales resulting from higher demand for its products and services. 

For manufacturers, wholesalers, and retailers, higher sales result in higher inventory requirements. This is when small business financing comes in handy, as entrepreneurs can use the funds obtained through these instruments to stock up to meet this higher level of demand.

Moreover, business financing could also help support the hiring of additional sales representatives, the purchase of warehousing equipment, and funding for marketing campaigns.

In this scenario, the cost of borrowing should be covered by the additional profits obtained from higher sales, and repayment periods don’t have to be necessarily long as inventories tend to rotate fast enough to allow companies to maintain an adequate liquidity level to meet their installment payments.

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Expansion projects

Companies regularly analyze the opportunities that the market offers to determine potential avenues of growth to take advantage of, pouring resources into marketing, distribution, and sales.

In order to expand, businesses need additional resources. Therefore, another reason to seek small business financing is identifying growth opportunities such as new geographical markets, product lines, or demographic segments that could be reached.

With the funds obtained through these sources, business owners can start planning and executing their expansion projects right away while paying the loan’s interest expenses using the profits obtained from the new project’s revenues.

Most businesses analyze these projects by using capital budgeting tools that estimate if the project’s profitability will be high enough to cover the cost of capital. Some of the most popular tools used to perform these assessments include the net present value formula and the internal rate of return.

Low cash reserves

The COVID-19 pandemic pushed some small businesses to the brink of bankruptcy due to a lack of cash. As you may know now, companies don’t go out of business because they don’t sell enough. They do because they have no money to pay for their financial commitments.

In this context, low cash reserves resulting from a sudden downturn in sales, an unforeseen disruption in the regular course of business, or a lengthier than expected cash cycle can be some of the reasons to seek funds through small business financing.

By doing so, owners can ensure the survival of their companies while the underlying pressing factor that is prompting such a cash drain disappears.

In the past year, the US government has also extended multiple financial lifelines for struggling businesses that, alongside traditional small business financing instruments, have helped companies in staying afloat.

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Take advantage of low-interest rates

Central banks worldwide have lowered interest rates to facilitate borrowing conditions for businesses demanding funds to survive and thrive in a post-pandemic scenario.

Lenders offer companies the opportunities to obtain financing at a historically low cost, allowing them to strengthen their cash reserves, obtain funding for expansion projects, or renewing their assets.

Even though interest rates may vary depending on the financial situation of your business, along with other factors, you could test the waters to see if there are attractive alternatives that offer cheaper-than-usual borrowing costs and flexible repayment periods so you can take advantage of today’s highly advantageous credit conditions.

Refinancing your existing debt

The current low-interest rate environment has provided businesses with the opportunity of refinancing old debt that might be generating higher borrowing costs. This can be done by using new small business financing to pay down such past commitments or through debt consolidation loans offered at a lower interest rate.

The first step to identify if there is an opportunity to refinance is to analyze the new loan’s overall cost, including any fees involved. If, upon performing that assessment, the resulting annual percentage rate (APR) is still lower than the one applicable to the business’ past financial commitments, then it will be a positive opportunity to bring borrowing costs down.

Bottom line

Small business financing can provide you with the resources your company needs to meet these and other financial goals so your business can keep moving forward.

Applying for one of these loans can be done from the comfort of your home or smartphone, and response times online are typically faster than those you would expect from traditional lenders. Go ahead and give it a try.

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