Is now the right time to borrow to grow your business?

Find out when to borrow and how to apply for a loan.

4-minute read

Updated January 05, 2026

Borrowing at the right time can help kickstart your business growth. But figuring out the best time to invest isn’t always easy. With a fluctuating economy, changing interest rates changing, the economy shifting and your cash flow needs that can vary by season and project, it’s important to take a close look at both your company’s internal health and the external environment before deciding to take on a loan.

This article walks you through the key factors to consider when deciding if getting a loan is the right move for your business right now.

Borrow when you have the capacity. It’s like buying an umbrella—it’s better to shop for one when the weather’s nice, because the market tightens quickly once the storm hits.

Why borrow?

There are many reasons for taking out a loan. But some reasons are better than others, says Sébastien Machado, Manager, Business Centre, BDC.

“Among the worst reasons to borrow, for example, are when companies just want to cover losses,” he explains. This can hide management or profitability issues rather than support real growth. In such cases, it’s best to review how your business is run and identify the root problems before considering a loan.

Good reasons, on the other hand, help improve your company’s competitiveness and support its growth. They include things like:

Making a capital expenditure, such as purchasing a building or equipment
Financing geographic expansion or entry into a new market to diversify
Increasing working capital to support significant growth
Investing in technology and automation
Supporting the development of new products or services
Using the equity in a building to refinance debt at a lower cost
Buying a business

Are there good or bad times to borrow?

For business owners who do their homework, there isn’t really a good or bad time to take out a loan.

What matters most is assessing your ability to repay, the profitability of the project you’re financing and the impact of the debt on your company’s financial health. As long as you have these factors under control, borrowing can become a strategic tool, no matter what the economy is doing or where interest rates stand.

What you should look at before deciding to borrow

To figure out whether taking out a loan is a good move for your business, it helps to think in terms of external and internal factors.

External factors are all the things happening around your business, such as interest rate trends, economic conditions and what’s going on in your industry. Internal factors are more about your company’s specific situation.

External factors to look at

Interest rates

Interest rates directly affect the cost of a loan:

The higher the interest rates, the higher your monthly payments and the more the profitability of your project may be compromised.
When rates are low, borrowing becomes more affordable, which can make it easier to move forward with strategic projects.

That said, your decision to borrow shouldn’t be based only depend on the current interest rates , insists Machado. “You need to do a long-term cost-benefit analysis for your project rather than just focusing on short-term costs.” A strong, profitable project can justify borrowing even when rates are higher, while a weak project is still risky no matter how much the loan costs.

Economic conditions

In general, when the economy slows down, businesses tend to see their revenues drop, which makes taking on a loan a riskier move. On the other hand, when the economy is growing, new opportunities often open up, and outside financing can become a powerful way to fuel growth.

“However, some industries are more sensitive to economic cycles than others,” Machado points out . That’s why it’s so important to really understand your industry before deciding whether it’s the right time to take on debt. If you’re in a highly cyclical industry, for example, it’s best to be a little more cautious.

Political and business climate

Geopolitical tensions, trade wars and new tariffs can quickly shake up the business environment—especially if you operate outside Canada.

In situations like these, it’s crucial to look at how stable or volatile your key markets are, and to think about how shifts in the political or business climate could affect your business. Before you take on a loan, it’s smart to think through a few different scenarios and check whether your project would still hold up even if business conditions became more difficult. In short, as Machado puts it: “You need to ask yourself whether your business model has any vulnerabilities.”

Uncertainty: a reason to borrow or wait?

Uncertainty often pushes businesses to hold off on borrowing. But as Sébastien Machado points out, those uncertain periods can actually be the right time to give yourself a bit more financial flexibility.

The flip side is that borrowing can become harder when the economy tightens. So sometimes, it’s better to take out a loan or secure a line of credit before your business or the economy takes a turn for the worse.

“Borrow when you still have the capacity to do so,” he advises . “It’s like buying an umbrella—it’s better to shop for one when the weather’s nice, because the market tightens quickly once the storm hits.”

Internal factors to look at

Financial strength

Before you borrow, take the time to do a full financial analysis. Look closely at your current and projected cash flow, profit margins and debt levels. These figures will help you ensure that your loan is within your ability to repay and that you can take on new debt without putting your financial health at risk. They’ll also be incredibly helpful in justifying your loan to your bank.

Your borrowing capacity can be estimated using the debt service ratio. You calculate it by dividing your company’s EBITDA (earnings before interest, taxes, depreciation and amortization) by the sum of interest and principal repayments on short- and long-term debt due over the period (usually one year).

A ratio of more than two is usually healthy and indicates that you are able to meet your obligations.

Other key indicators will also be used by financial institutions to assess your borrowing capacity. These include:

Your personal credit report
The debt service ratio (your EBITDA divided by interest repayments)
The debt-to-equity ratio
The debt-to-total assets ratio

Management capacity and governance

Banks place a lot of importance on the quality of the management team. Before borrowing, business owners need to make sure they’re well prepared. That means knowing your financial statements inside out and being able to clearly justify your borrowing plans, he explains . “For a bank, the financial side of a loan project is always important,” he says. But a well-prepared management team also helps build trust with your banker.

In other words, when thinking about taking on debt, entrepreneurs should ask themselves:’Am I able to meet with my bank and explain why I need financing?’ A good practice is to create a clear, detailed plan with solid numbers to justify your loan. This will increase your chances of securing financing and using it wisely.

“A bank won’t necessarily reject your application just because your debt coverage ratio is negative, for example,” explains Machado. “But to get the funds, you’ll need to convince them of the soundness of your project.”

How to prepare for a loan

Machado offers four tips for preparing for a loan.

1. Determine your financing needs

Before you meet with your bank, think about your financing needs. Don’t just consider the ’right’ loan amount, but also what type of loan makes the most sense.

“Be sure to apply for financing that matches the type of project you have in mind,” he advises . For example, avoid making a long-term purchase, such as equipment or machinery, with cash or an unused line of credit. Using your line of credit for a long-term purchase ties up space that could otherwise support your day-to-day operations. It’s better to keep this cash for your short-term needs and to support the growth of your business.

2. Prepare for your meeting with the bank

Before you meet with your financial institution to apply for a loan, make sure you can clearly explain and justify your project, both quantitatively and qualitatively. Machado recommends preparing clear, detailed answers to the following questions:

What are the costs and benefits of the loan project?
How did you determine the loan amount you’re requesting?
How healthy is your business financially? What do you anticipate financially for the coming year?
How does this project fit into your business plan?

“Many business owners will say, for example, that they need money to buy a building. But sometimes, they have trouble going beyond this superficial explanation,” he says . He believes that a borrower should be able to provide a clear, detailed explanation: in this case, maybe the business had to turn away clients because its production capacity was limited, hence the need to expand its facilities. Be prepared.

3. Build your personal credit

Personal credit is extremely important for small and medium-sized business owners. In fact, the smaller the business and the amount requested, the more personal credit matters.

Machado points out that there’s a strong link between how you repay personal and business loans. “As a result, a business owner may sometimes be denied a loan because of poor personal credit, even if the need is clearly defined and the project is well thought out.”

So, focus on building healthy credit habits. This will not only help you get your loan but can also lead to much better financing terms.

Next step

Take a close look at your company’s finances and find out how to improve your operating cycle by downloading our free guide for business owners: Taking Control of Your Cash Flow.