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Why You Should Pursue a Cash Flow Loan
May 16, 2019
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Why You Should Pursue a Cash Flow Loan

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 successfully manage your 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.

Without an appropriate amount of cash flow, your business can go through 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 Loan:

Before applying for additional financing, it’s important to assess your businesses finances. If your business is having cash flow problems 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?
  • 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.

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4 Ways to Use a Cash Flow Loan for Growth:

1. Have Money On-Hand in the Event of an Emergency

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, for example. These are situations that you’ll have to tend to immediately.

With the right amount of small business cash flow, 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

Whether it is an expansion project, a new line of inventory, or an added technological system, 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. When you have steady cash flow available, you won’t risk racking up 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 score.

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 monthly costs. Don’t fall into this group! Using your loan to ensure a healthy cash flow can be beneficial if your business goes through a rough period in terms of sales.

Conclusion: Do You Need to Improve Your Business’s Cash Flow?

While there are many ways to utilize a business loan, using it for consistent cash flow can enable you to pursue new opportunities.

If you’re ready to receive this type of loan, research alternative and online lenders. Once you do that, take time to discuss their 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 May 2019.

Fora Financial

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.

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Fora Financial is a working capital provider to small business owners nationwide. In addition, the Fora Financial team provides educational information to the small business community through their blog, which covers topics such as business financing, marketing, technology, and much more. If you’d like to see a topic covered on the Fora Financial blog, or want to submit a guest post, please email us at [email protected].