Every small business owner knows how important cash flow is to the health of their business. Cash flow is about keeping a vigilant record of accounts payable and accounts receivable and managing that process to stay profitable. This may involve being flexible with payment terms such as early payment discounts, retainers and clear systems and processes. Even the most successful businesses have fluctuating cash flow and it is common to factor business loans into the equation to cover downtimes.
There are many reasons for cash flow fluctuation and a business is at risk of folding unless the owner considers a loan to fill the gap. To see if a cash flow loan is right for you ask yourself these two questions:
What is my cash balance right now?
What do I expect my cash balance to be in 6 months’ time?
After tracking your cash flow over several months you will be able to make cash flow projections which will enable you to plan for the future. Whether you are experiencing positive cash flow now but soon won’t be or have suddenly found yourself in a cash flow rut, there are loan options to cater for your needs.
For businesses that need inventory
Common for small businesses in retail, wholesale and manufacturing, inventory financing fills the cash flow gap between purchasing inventory and seeing a return on that investment. Inventory financing usually takes the form of a line of credit or a short term loan specifically to purchase inventory. The inventory serves as collateral for the loan should the business not sell its products. This type of loan is useful for businesses who need to pay their supplier before they are able to sell the inventory. Often, these funds allow the business to achieve higher sales volumes than they would otherwise. Due to the risk involved with inventory loans, many traditional banks do not offer inventory financing and small business owners are turning to alternatives so that they can achieve their business goals.
For businesses with seasonal fluctuations
Seasonal businesses are businesses that are affected by factors such as climate, time of year or occasions. Gardening businesses and costume suppliers are examples of seasonal businesses. Although income may be limited during downtimes, expenditures often remain the same. These businesses plan accordingly and build short term loans into their cash flow projections. Whether you’ve been hit with an unexpected slow season or you are safeguarding yourself for off-peak times, there are several funding options available to keep you afloat.
For businesses with outstanding accounts receivable
Accounts receivable financing is an asset-financing option where money owed is used as collateral against the loan. These types of loans allow small business owners to free up cash that is stuck in accounts receivables. Generally, the default risk of the accounts receivable are transferred to the lender – a process referred to as “factoring.” Often, the money can be in the business owner’s account quickly so that they have the cash in hand they need to grow their business. There are a multitude of options available with varying terms and rates.
Knowing where to start
Cash flow financing may be hard to get through big banks but that doesn’t mean it isn’t available. Lines of credit, short term loans and factoring along with other loan types are offered by many lenders with varying terms and rates.
Fundkite are in touch with the specific needs of small businesses and have partnerships with a large variety of lenders so that you can keep your cash flow positive and maintain consistent growth. Apply now to have the capital you need in your account in 72 hours or less.