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Telltale Signs It’s Time to Consider Your First Small Business Loan

Written by on September 23, 2015

Kabbage is the leading online provider of small business loans, pioneering the first financial services data and technology platform to provide fully automated funding. Learn more about efficient capital borrowing with Jeanna Barrett, Kabbage’s Head of Inbound and Content Marketing team.

As a small business owner, you probably spend most of your time worrying about your future growth. Marketing strategies, hiring, technology needs… The list just goes on and on until you stop reading to pop another Tums. And then there’s the million dollar question, the question that keeps you awake most nights, wondering if this was a good idea or not… What about the capital?

No matter how well prepared you are, you never know when the need for a ready source of funds can sneak up on you. You may have contingency plans, but you will need time to execute them. Your customer service quality and marketing efforts will suffer in that time. New opportunities will most likely be lost and you might be forced to scramble for capital in ways that might not always work out well in the end.

Here are four giant, telltale signs when it actually makes a lot of sense to get a loan:

You’re Running Out of Space

Small businesses often start in home offices, garages or in tiny storefronts. And as you’d expect, as sales starts increasing, you start needing more space as well. More people, more services, more gadgets, more room. So, if there’s a strong cash flow and positive forecasting numbers, instead of waiting for the room to buy itself, you should consider a small business loan.

After all, the right time to consider a new lease or a real estate purchase isn’t when you’re bursting at the seams. The smart thing to do would be to evaluate current and projected sales so that you can find out, months in advance, when you might need more space. However, considering the best-laid plans of mice and men – a large client, a dramatic jump in sales figures – you should definitely keep an eye out for a ready source of capital. Like say, a lending platform like Kabbage which can provide funds for a quick expansion.

You Need More Help

While it’s not uncommon for business owners to be nearly overworked to death before seeking help, it’s definitely not what the doctor would recommend. While you might feel like you can take care of everything by yourself, you’ll burn out pretty quickly if you don’t balance work with sufficient downtime.
However, hiring additional staff is a big step, a step so big that it merits quite a bit of consideration and planning before you decide to climb it. And we’re not even talking about the capital necessary to sustain growth.

The problem with hiring more staff is that you have to choose whom you want to hire: salaried employees or contractors. This can be a difficult decision because both offer distinct advantages a full-time employee can be trained in multiple facets of the business and become a heavily relied upon resource for the long-term. However, there are financial considerations such as having to pay for benefits along with a salary. A contractor or freelancer can be specialized in a specific area where you need help, and they can be used only when you have a specific need for their services. Yet, you will most likely be paying a higher hourly rate for this type of help, and there’s always the chance that they may not be available when you need them.

So, your best choice is to have regular planning sessions to decide if you need a helping hand before you take the big plunge and just hire someone. For instance, if you know that sales is going to dramatically jump during the holidays, a part-time employee might serve you best. Or, it may be the right time to take the leap to hire a full-time employee to just expand operations on an ongoing basis.

The key is hiring the right type of employee at the point when their help will lead to either a direct or an indirect boost in sales. When the timing is right, the cost of borrowing money can be quickly offset by increased revenue.

You Need More Inventory

One of the most common growing pains for small businesses is not having enough inventory to fill orders. One unexpectedly large order can send even a well-organized organization into a tailspin if there are not enough funds to purchase or produce inventory.

Many small businesses are also seasonal in nature, particularly those in retail. If the bulk of sales happen during the holiday season, inventory will need to be purchased well ahead of the season. Financing is frequently required to gear up for this time. Short-term, flexible funding can be particularly beneficial to cover the purchase of inventory. Provided everything goes well, once the season is over, businesses can usually pay off the debt with the proceeds from the seasonal sales.

You Need More Equipment

As with getting more hands on deck, you have two options when it comes to acquiring more equipment for your business. You can either choose to buy it or lease it. This is the point where every cash-strapped small business owners sighs and signs on the lease but hold onto your horses for a second. One of the benefits of taking out a small business loan to buy equipment is that you can receive some substantial tax write-offs. Not to mention that you can also use the equipment for its entire lifespan or trade it when you please for a higher model.

Of course, there are some benefits to leasing as well. Upfront, the cost is lesser and at the end of the lease, if you’re unsatisfied, you can choose another model. The repair cost is generally lower and the down time’s lesser too. If the equipment isn’t working, you can just trade it in for one that does.

To determine, whether it’s time to acquire financing to buy or lease equipment, we’d recommend that you conduct a cost-benefit analysis. If you can prove that there’s a direct financial benefit from the purchase/lease, go for it.

Taking that first step in getting financing for a business can be daunting. You don’t want to bite off more than you can chew. Yet, you want to be able to cover the costs of what you need to grow. To successfully leverage the benefits of a loan, whether it’s from a bank, a family member or a platform lender like Kabbage, it’s essential to carefully analyze your needs now and in the future and how they can most cost-effectively be met. With a little homework and some strategic planning, additional funds can be a vital part of your continued success.

At what point did you determine that you needed a small business loan? We’d love to hear about it. Please share your story in the comment section below.

And, if you are interested in applying for a small business loan, Kabbage has a special offer for Freshdesk customers.

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