Why You Should Pursue a Cash Flow Loan
To improve your business’s financial situation, it’s crucial that you learn how to successfully increase cash flow. Responsible cash flow management can make a difference during times when your sales are at a lull or you have an unforeseen need.
Notably, business owners across the globe have faced profound struggles during the COVID-19 pandemic. Due to this, cash inflow has been more important than ever.
Without an appropriate amount of cash flow, your business may experience situations where you might not be able to afford necessary costs. For example, without enough cash flow, it can be difficult to pay for equipment upgrades, or even pay your monthly bills.
That’s why using additional financing for cash flow growth can be wise. Not having to worry about running out of cash means you’ll be able to focus on other areas of your business.
In this post, we’ll share four ways that small business owners like you can utilize business loans for cash flow stability.
How to Determine If You Need a Cash Flow Business Loan:
Before starting the application process, it’s important to assess your business’s financial health. If you need to improve cash flow and you’re considering applying for a loan to fix these issues, take these steps:
- Use an Income Statement: When you create an income statement, you can review your business’s revenues and expenses. This should help you determine how much free cash flow you have.
- Consider Your Operating Activities: Ask yourself, how much money do you need to spend to produce your products or services, and how long does it typically take for customers to pay you? In addition, how much money is typically in your accounts receivable at one time? By creating cash flow statements, you can determine how much funding you’ll require.
- Utilize Accounting Software: Having access to accounting software can help you be more accurate when calculating your business’s cash flow patterns. While some paid options offer more in-depth analysis, there are plenty of free tools, such as Accounting by Wave.
- Review Your Investment Activities: When assessing your cash flow, you should review your recent investment activities, including equipment, real estate, and any other long-term investments that your business has made.
4 Ways to Use a Cash Flow Loan for Growth:
1. Have Money On-Hand For Emergencies
Unfortunately, you never know when a business emergency could arise. For example, perhaps a piece of equipment will break, or your rent will be raised. These are situations that you’ll have to tend to immediately.
If you decide to borrow money in the form of cash flow financing, you’ll be able to afford these necessities, and you won’t have to cut down on other costs. Learning cash flow management skills will help you ensure that you save cash for any unanticipated crisis.
2. Pay for Exciting New Initiatives
Projects like the ones mentioned typically have additional costs that come into play, so with added cash flow you won’t have to worry about running out of money.
3. Avoid Overextending Your Financing
Cash flow management is crucial to your business’s day to day operations. When you have steady cash flow available, you won’t risk racking up business debt.
Some business owners make too many charges to their business credit card when they have negative cash flow. This results in an influx of debt, and can affect your credit history. If it hurts your credit score, it could affect your ability to get approved for financing in the future, or result in higher interest rates.
Having additional working capital for cash flow improvement will allow you to remain financially responsible.
4. Have Money for When Sales Decline
It can be stressful when your business isn’t meeting sales goals. You’ll need finances to continue running your business, while trying to increase sales.
With negative cash flow, going through a sales lull can mean that business owners can’t afford all their weekly or monthly costs. Don’t fall into this group; instead, use your loan to ensure a healthy cash flow during rough periods of sales.
Conclusion: Do You Need to Improve Your Business’s Cash Flow?
While there are many ways to utilize a small business loan, using it for consistent cash flow can enable you to pursue new opportunities.
If you’re ready to pursue this type of financing, research alternative and online lenders. Once you do that, take time to discuss their cash flow financing options, and determine how they could help you improve your business’s cash flow.
Cash flow management can be challenging but receiving a short-term loan to use as positive cash flow can help safeguard your business’s future.
Editor’s Note: This post was updated for accuracy and comprehensiveness in September 2021.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.