When running a business, time has a way of working differently. One week can feel like it’s been a month, and no situation is more concerning than one waiting for an infusion of funds. While it’s easy to say that banks take time to approve loans, few understand the financial toll behind such approval. It’s not just about waiting; it’s about true costs of opportunity lost, contracts gone, bulk order discounts passed up, and market shares snatched by competition.
Time Takes Time
When it comes to business loans, the average approval takes anywhere from 30 to 90 days. That’s without considering the application prep time ahead of actually hitting “submit.” However, from the perspective of a running business, that timeline doesn’t align.
If you’re offered a 20% discount for ordering millions of dollars worth of materials this month, chances are that next month or even next week, your options will not still exist. If you find your ideal space for expansion, it could be rented out in a week. If you know you need furniture and shelving to support your largest contract yet, it will sit in another showroom waiting for an answer in the meantime. And this is reality. It occurs every day for those awaiting traditional means of finance.
And this is where it gets costly. If a business finds an opportunity that would generate $50K in profit but needs $30K to get started, if it takes two months for bank approval but the opportunity vanishes after three weeks, that’s $50K in the bank that should’ve been acquired already, but it’s not there. The opportunity was legitimate. The business simply suffered because it could not act in time.
The Cycle Costs More Than Missing Opportunities
What’s worse than missing an opportunity? Learning how to run your business assuming you’ll miss out on funding. This hurts where conservatism is concerned. Even if a good opportunity comes along that makes sense for a business, it might not happen because they fear not having the capital when needed; instead they need to keep more on hand just in case they lose out instead of working with more optimal operation numbers.
It’s easy to give in and take the “safer” option, but at what cost? Clients also see the effects when they hire someone who cannot upcharge because they do not have resources available; a poorly resourced company working with funding at the last minute gets up to speed much too late.
And let’s factor in mental stress over missing opportunities. Yes, it’s unquantified stress, but it’s stress nonetheless. When a business owner sits on their hands for weeks without knowing if they’ll be funded, if they can act with enough time or if they’ll need to wait all over again for another loan down the line, that takes valuable mindshare from employee development and customer servicing. It’s all avoidable, but only if businesses avoid traditional bank guidelines in favor of innovative new approaches.
When Going with the Lowest Rate Makes Sense
The expectation is that the lowest interest rate is always the best option. While that makes complete financial sense, it doesn’t account for other time-sensitive opportunities that may prove faster options to be more financially prudent down the road—even if with a slightly higher cost up front.
Seasonal businesses operate under significant timelines. Landscaping companies cannot wait until June to have equipment approved by a bank; if it’s summer now and funds might come through in three months, is that worth it? The answer is often no, and thus alternative forms of financing like a merchant cash advance exist, which are repaid via credit card revenue sales guaranteed by daily sales; this option allows a business to scale when time is crucial.
Certain industries move faster based on trends and inventory; restaurants rely on changing menus and manufacturers need approvals on construction jobs ASAP; fintech opportunities expand by the day and the “cheapest” loan is infinitely more expensive when one misses the boat on a timely opportunity.
Putting Numbers to the Idea
A small manufacturing company might find itself up for a $100K contract but need $40K upfront in materials and labor but $25K profit would be realized from deliverables. If traditional bank loans take 60 days and the job requires delivery in 45 days, by the time the job is approved it’s already gone.
Or what about a retail situation during the holiday season? A new trending toy comes along that would sell $80K worth with an investment of $30K for upfront materials/capacity, but banks take six weeks for approval. By then, January hits and stores are restocked but at 50% off.
This matters more than whether a bank offers 6% on its loan or if another lender gives an 8% loan offer; by the time interest rates approach practicality on either side, no one cares because time is of the essence when making money with money; why celebrate a successful loan rate approval if nothing was accomplished by receiving it?
What Proactive Businesses Do Differently
Proactive businesses that capitalize on opportunities regularly do not rely upon traditional bank timelines; instead, they have fluid relationships with multiple lenders and other opportunities available to them should they know where to look and operate efficiently enough to get answers before stress clouds their vision.
It’s important to note that business must be proactive; they cannot wait until an opportunity arises to determine the options they have, they need to establish relationships with various entities ahead of time and understand what cash they can receive before they need it most desperately.