Business Credit Center

Small business capital: Is now a good time?

The best time to apply for credit may be sooner — or later — than you think.

In business, timing is everything. Whether you're starting out, planning a change, or reviewing your financials, you may be wondering, "Is this a good time to apply for credit?"

There's no rule of thumb or magic formula for assessing small business credit: It depends on your needs, your strategy, and especially your ability to repay. Before you make the decision, ask yourself these key questions.

1. Where are you in the business lifecycle?

A startup might be leveraging personal assets and small loans, while an expanding business might need real estate financing or a term loan. Focusing on your business growth stage helps determine when to apply for credit and which credit options to consider. Each business is unique, and may not go through every stage, so think of the lifecycle concept as more of a general guide than a specific timeline.

2. What is your credit capacity?

This term simply means your ability to repay your debt obligations using your business cash flow. It's a measure of your creditworthiness, so lenders will look at it very closely. Having capacity doesn't necessarily mean it's a good idea to borrow — that still depends on your needs. But a lack of capacity is generally an indication that the business can't support additional debt payments at this time. While credit can cover short-term gaps in cash flow or expand your business, it is not a remedy for a more serious, long-term decline in your business finances.

3. Do you need the money next week or next year?

Once you understand your capacity, focus on your plans. Different types of credit have different timeframes, ranging from just a few days to as much as several months. Consider the length of the whole process, starting with submitting an application through being able to use the credit, and think about how much time you'll need to gather financial information or business documents. Also keep in mind that you can apply for a line of credit long before you actually need to use it.

4. What's happening in your business environment?

Anticipating a rate change or an uptick in economic indicators might work to your advantage, but timing can be a challenge even for financial experts. Consider focusing your effort on trends in your market: What's the outlook for your specific industry? Your local area? How are your customers' needs changing? Make sure your plans are in step with conditions that might affect your business.

Talking to your banker is a great way to start getting answers to your questions about credit before you apply. While bankers can't predict or influence whether your application will be approved, they can help you make sense of the world of credit, offer information about the different options available to you, and help with the application itself. Whether you apply tomorrow or in the future, it's always a good time for a strong banking relationship.