However, while keeping your debt manageable is always wise, waiting until disaster strikes to seek funding isn’t. In fact, borrowing capital before you need it can be a great way to stabilize your business’ future.

Here’s why waiting for a crisis to secure funding is a risky move, and why borrowing sooner than you need to can be a smart decision for your business.

You Might Get Rejected

Don’t fall victim to the misconception that the funding you need is sitting idly in a bank vault somewhere, waiting for you to claim it. 

Most small business owners who apply for traditional bank loans get rejected—about 80%—and banks are offering fewer small business loans than ever before. 

Your loan application will likely face stiff competition from other businesses, and if you’re approaching a lender in the midst of a financial slump, your likelihood of qualifying may be less than ideal.

Given these steep odds, the fate of your business shouldn’t hinge on approval from a lender. 

Whenever possible, apply for funding before you reach your breaking point.

Lenders Want to See Stability, Not Financial Need

Lenders want reliable, creditworthy borrowers. 

The greater the risk you present to a lender, the less likely they are to approve you. The approval process isn’t, for example, like applying for student aid, where financial need could get you a heftier loan. 

Instead, lenders want to see things like consistent cash flow, strong credit history, and a detailed business plan for paying back your debt. 

They’ll also look at things like outstanding debts, any financial investments you’ve made in your business, and what you plan to do with your borrowed capital.

Applying for a loan during a time of financial need means lenders could be seeing your business at its most desperate or debt-ridden. 

You might be confident in your ability to turn things around for your business, but unless your loan application can prove it, your lender isn’t likely to be impressed.

Expanding your business? Hiring new employees? Purchasing new equipment? These are all great reasons to seek funding. Your business is thriving, and you need more capital to grow.

Struggling to Repay Could Have Long-Term Consequences

If you secure a loan but subsequently struggle to repay, you’ll face some negative consequences—some fixable, some less so. 

Lenders notify credit bureaus when borrowers miss multiple payments, meaning your credit score will take a hit as a result of your failure to pay. 

Your lender may also charge you late fees. Luckily, you can rectify these knocks against your business as soon as you resume making payments.

Other consequences, however, are more permanent. If you default on your loan, your lender may come after your property or possessions in order to settle the debt.

 If you put up collateral when you took out your loan, such as a piece of real estate or equipment, your lender may seize it. 

If you didn’t put up any specific business assets, personal assets like your car or your house could be on the line.

Don’t trap yourself in a cycle of debt by taking out a loan you can’t afford. 

Apply for a loan only when you have a clear understanding of how much debt your business can shoulder and a detailed plan for repaying.

Borrowing During an Emergency Limits Your Options

If crisis has struck your small business, you may not have weeks to wait for funding. 

Short term loans and other forms of emergency financing offer speedy approval processes (some as short as 24 hours) and less stringent qualification criteria for business owners in dire straits, but those conveniences come at a cost. 

You may find yourself saddled with steep interest rates and fees, and a short repayment period could mean sizeable monthly payments.

Shopping for funding before disaster strikes, however, means less pressure to agree to less-than-ideal terms. 

You’ll have time to identify the right lender and loan product, refine your application, and wait through a longer approval process. 

You’ll have better odds for securing a loan with a gentler repayment schedule that’s less costly over time.

Borrow while you’re thriving, with a solid plan for how that borrowed capital will help your business grow. 

If you’re approved, you’ll have the opportunity to develop a relationship with your lender you can leverage if you ever hit a time of financial need—plus a bit of cash to make your latest business dream project a reality.