June 06, 2022

Should You Pursue a Cash Flow Loan to Grow Your Business?

Running a small business can be a tumultuous, unpredictable job. There will be times that you experience unexpected highs and lows, especially when it comes to your small business’s finances.

To improve your business’s financial situation, it’s crucial that you learn how to increase cash flow successfully. Responsible cash flow management can make a difference when your sales are at a lull or you have an unforeseen need. Notably, small business owners across the globe have faced profound struggles during the COVID-19 pandemic. Due to this, cash inflow has been more critical 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, it can be challenging to pay for equipment upgrades or even pay your monthly bills without enough cash flow. 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 business areas.

We’ll share four ways small business owners like you can utilize business loans for cash flow stability in this post. After reading this blog post, you’ll understand how cash flow loans work, typical cash flow lender requirements, and how you can secure this loan type.

How to Determine If You Need a Cash Flow Business Loan:

Before starting the loan application process, it’s essential to assess your business’s financial health. If you need to improve cash flow gaps and you’re considering applying for a business 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 and decide whether you need to secure additional funding.

  • 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? You can determine how much funding you’ll require by creating cash flow statements.

  • Utilize Accounting Software: Access to accounting software can help you be more accurate when calculating your business’s cash flow patterns. While some paid options offer detailed 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 landlord will raise your rent. 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 save cash for any unanticipated crisis.

2. Pay for Exciting New Initiatives

Whether it is an expansion project or a new inventory line, you can make advancements when you have enough small business cash flow. 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. You won’t risk racking up business debt when you have steady cash flow available. Some business owners make too many purchases with their business credit cards 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. Going through a sales lull with negative cash flow can mean that business owners can’t afford their weekly or monthly costs. Don’t fall into this group; instead, use your loan to ensure a healthy cash flow during rough sales periods.

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. Suppose 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 June 2022.

Since 2008, Fora Financial has distributed $4 billion to 55,000 businesses. Click here or call (877) 419-3568 for more information on how Fora Financial's working capital solutions can help your business thrive.