Why January may be a Good Time for Financing

Key Highlights

• Securing financing in January allows small businesses to thoroughly explore financing options, secure better terms, and incorporate repayments into their annual budgets, avoiding the risk of scrambling later (which often leads to higher interest rates and rejections).

• Small businesses may appear more financially robust to lenders in January, especially if it's a seasonal business, and its cash flow is strong immediately following the peak holiday season.

• Lender demand often slows in January, so applying for financing early can result in shorter waiting periods, faster funding times and more personalized service.

• Having funds readily available starting in January ensures you can immediately capitalize on sudden growth opportunities (e.g., launching new products, purchasing inventory, hiring staff) without delay.

• Early financing puts your business in a strong financial position to handle unexpected costs like surprise tax bills or additional accounting needs, ensuring timely year-end filings.

• Survive Slow Seasons: Securing financing before slow revenue periods hit provides cash on hand to cover regular operating expenses and "keep the lights on" comfortably.

For most small business owners, January doesn't just mean sticking to resolutions, it also means financial planning for your business needs for the next 12 months. That makes January a very good time to obtain financing in order to prepare your business for the financial challenges and opportunities in the year ahead.

Financing products such as term loans, equipment financing, business lines of credit and revenue-based financing can be great tools when planning events such as the launch of new products or services or plugging any anticipated cash flow gaps in the year ahead. Obtaining financing at the beginning of the year puts your business in a position of strength for the upcoming tax season.

Think of it this way - not securing financing for your business in January is like going to the shopping mall without a credit card and then scrambling to apply for a new card when you need to purchase something. It makes little sense.

In this article, discover how obtaining financing for your business in January may put your business in a strong financial position for the rest of the year, and why there are unique advantages to being proactive early in the year when it comes to your financing needs.

Should You be Proactive?

Planning how to tackle the anticipated challenges of the upcoming year is far better than simply reacting to challenges as they happen. Having to scramble for financing or having to use a high interest credit card to pay for last minute expenses can lead to less beneficial terms from lenders; high interest rates and higher chances of getting rejected by a lender because your business isn't doing well at the moment.

Additionally, applying for financing in January gives you more time to thoroughly explore your options when it comes to choosing the type of financing that may be best for you. Choosing the wrong financing solution because you're in a rush for funding could end up costing you.

Having immediate access to funds throughout the year gives you the cushion you'll need to handle unexpected expenses and fund sudden growth opportunities. Tools such as term loans and revenue-based financing have regular repayment terms, thus allowing you to incorporate debt repayments into your annual budget at the beginning of the year to help keep your business stable.

Are Lenders More Likely to Approve Loans in January?

Small businesses may be more attractive to lenders in January because one of the most important factors that lenders look at is the strength of your business' cash flow. If you run a seasonal business. January may be the month when your business' accounts receivable and cash flow are most robust.

If you have a strong credit score, January may also be the month when you can secure the best interest rate on a term loan or business line of credit.

Is January a Slow Period for Lenders?

Most lenders don't see a lot of business at the beginning of the calendar year, as many small businesses wait until the beginning of the second quarter to take out financing. A recent Equifax report shows that small business lending volume is typically slow in January. However, small businesses should be doing the opposite. Applying for financing in January could lead to

• Shorter waiting periods from traditional banks;

• Faster funding times if you're approved;

• More personalized service, especially from traditional banks, and

• An increased willingness on the part of lenders to negotiate terms.

Will Early Financing Prepare Me for Growth?

Growth is crucial to the future of your business, but sudden opportunities need funding. Having money ready when you need to develop and market a new product or service (rather than having to scramble for funding at the last minute) will make your business more efficient. Knowing that you have funds available if you suddenly need to purchase additional inventory, hire additional staff or open a new, physical location will also help your business save time and money, as well as give you peace of mind.

Obtaining financing at the beginning of the year allows you to:

1. Immediately fund the marketing and launch of a new product or service;

2. Quickly purchase extra inventory for popular products;

3. Hire additional staff;

4. Keep your cash flow steady for offseasons;

5. Handle unexpected expenses such as emergency repairs or lost inventory, and

6. Make sure your business is in a position of strength during tax season.

Does Financing Early Better Prepare Me for Tax Season?

January marks the beginning of the dreaded tax season for most small businesses. The tax filing process can be complex depending on what type of business you own, and the chances of suddenly having to hire additional accountants or having to pay a surprise tax bill at the end of your fiscal year are always high.

Having funds at your fingertips because you obtained financing early puts your business in a strong position as you approach tax season and dramatically cuts down on the chances of your business being late on its year-end tax filings.

How Prepared Am I for Slow Periods?

Most small businesses, including restaurants, small construction companies and independent retail stores, are seasonal by nature and face slowdowns in revenue during certain times of the year.

Financing can help during these periods, but you don't want to be in a position where you're having trouble meeting your regular expenses as you wait for your loan application to be approved. It's usually better to prepare yourself for these slow periods by obtaining financing at the beginning of the year. Early financing gives you cash on hand to make sure you can keep the lights on.

What Types of Financing Are Available?

There are several types of financing that you can choose from to prepare for the year ahead. When deciding if you need financing, carefully consider your financial situation and what type of financing may be the best fit for your business.

• Term Loans. Term loans provide a lump sum of money to the borrower to be paid back with interest in installments. Term loans may offer a lower interest rate than other types of financing. Some lenders may require a business plan and other paperwork during the application process. Some borrowers, usually traditional banks, offer secured term loans that require collateral.

• SBA 7(a) loan. A 7(a) loan is essentially a term loan that is backed by the SBA. This type of small business loan usually offers the lowest interest rates compared to private lenders as well as a variety of loan durations. The requirements for 7(a) loans, however, are higher than most private lenders and require more paperwork.

• Business Line of Credit. A business line of credit provides an amount that a small business owner can borrow against at any time for any reason. The borrower only pays interest on the amount borrowed. Repayment terms can vary, and a balloon payment may be required at certain intervals, depending on the agreement.

• Equipment Financing. Equipment financing can be used to purchase expensive equipment that is vital for the operations of a business. This type of financing provides a lump sum for the amount of the equipment and typically requires monthly repayments with interest. Equipment financing agreements may require a slightly lesser credit score than term loans since the equipment itself acts as collateral.

• Revenue-Based Financing. Revenue-based financing provides the borrower with a lump sum of cash in exchange for a pre-agreed percentage of future sales plus fees. It's usually more expensive than other types of financing but offers quick funding times and carries little default risk due to the nature of the repayment agreement. Repayments can be on a daily or weekly basis.

January is the Time

While January is usually a slow season when it comes to small business lending, it could be the month in which small owners may want to apply for borrowed funds. Obtaining financing in January is a prudent business strategy that puts your small business in a financially strong position throughout the year. Being proactive (instead of reactive) when it comes to the financing needs of your business gives you financial stability. It also gives you the flexibility to plan your business' success throughout the year instead of having to scramble for financing whenever unexpected costs arise.