3 Small Business Loan Options to Master Cash Flow Management

It's the nature of business to be cyclical. This means your company's cash flow will find their own high and low points as well, throughout the seasons and throughout the years. Will you make it from this ebb to the next flow? Would getting a cash infusion in the form of a business loan, business expansion loan, or line of credit help you? And how can you best use this cash infusion to improve your business?

Here's some ideas on how lines of credit and business loans can be leveraged to help your growing business, not to mention your growing cash flow.

Why Should You Have a Business Line of Credit?

It's great to consistently have enough cash stored in your bank account to cover ongoing expenses. That probably means your business is doing well. But you also may want to consider the ways that having a business line of credit (LOC) can work to your advantage. Chances are, there'll be situations over the life of your business where it would make more sense to borrow, rather than completely empty your accounts.

If you were suddenly hit with an emergency, what would that do to your available cash? By spending a lot of money to fix your problem, you could end up sacrificing all that available cash—which is one of your most valuable assets. Opening a business LOC can help protect your assets by giving you a short-term boost to your cash flow.

But they're not just to help in an emergency. A business LOC can also be helpful when you have a chance to make a significant investment that can immediately improve your business. What if you come across an excellent deal on trucks that would surely expand your customer delivery base? Or if you have an opportunity to buy inventory at a steep discount? With access to a business LOC, a business could be in prime position to take advantage of these opportunities.

A small business line of credit (LOC) allows a borrower to draw against a lender-specified amount of financing on an as-needed basis. The advantage of a business credit line is that you only pay interest on the funds you actually draw, so you’re not stuck paying interest on capital you don’t have an immediate use for. Here are a few small business line of credit options to consider:

1. Traditional line of credit:

The traditional line of credit is typically meant for experienced business owners with proven business models. Which makes sense since the credit maximums are sizable, the rates are lower, and the requirements demand higher credit scores and annual revenue reporting. If you’re a business owner taking out a line of credit, you’ll be spending that flexible cash on seasonal business expenses, payroll and other operational costs, insurance against emergencies and for sudden opportunities. In other words, as a capital cushion. It’s there for you when you need it.

2. Short-term line of credit:

The difference between a short-term line of credit and a traditional line of credit is more or less the same as the difference between your typical short-term loan and conventional bank or longer-term online loan  Therefore, a short-term line of credit has a higher interest rate, lower credit maximum, faster turnaround time and looser application requirements. Unlike the traditional line of credit, the short-term line of credit is generally offered by alternative lenders rather than by banks. The point isn’t that one is better or worse, they appeal to different groups of business owners. Those with lower credit scores, smaller annual revenues, or newer businesses might only qualify for a short-term line of credit. And although the short-term line of credit tends to be more expensive, its value lies in giving younger small businesses the opportunity to maintain a flexible pool of capital. A small business line of credit provides flexibility that a regular business loan doesn’t. With a small business line of credit, you can borrow up to $100,000 and pay interest only on the money borrowed. You then draw and repay funds as you wish, as long as you don’t exceed your credit limit. Need to manage cash flow? Buy inventory? Pay for a surprise expense? Then a business line of credit makes sense.

3. Invoice-backed line of credit:

The basic idea behind invoice financing (also called accounts receivable financing) is that, sometimes, customers take a long time to pay you back -- but you might not be able to wait. Instead of relying on short-term loans to cover operating costs, or digging into your savings, you could just get those invoices paid right away -- although you’ll have to shoulder the costs of that speed and efficiency. An invoice-backed line of credit follows the same logic. The value of your invoices determines your credit maximum, and you can draw capital as needed instead of relying on your customers to pay on time. And as your invoices increase, you’ll typically have access to more cash from the line of credit as well.

When Should You Use a Business Term Loan?

Unlike a line of credit, a term loan can give your business a lump sum cash infusion, and the loan balance is paid back over a specific term with a set interest rate, similar to a mortgage or auto loan. And like a mortgage or an auto loan, these business term loans are best utilized for set capital needs. A smart business owner will want to make sure that loan works in a way that helps the business's cash continue to flow.

This may include investing in ownership of a large property that will give a business room to expand, or purchasing high-end equipment that would increase productivity and sales. These are significant purchases that should be made with the long-term goals of the business in mind, and you should make sure they won't interfere with the short-term goals of the business. If you do your research and crunch the numbers, it may be worth it for your business to take out a business loan—but only if it can accelerate your cash flow at a rate that outpaces the interest you'll pay on the loan.

Business Expansion Loans

One of the biggest mistakes business owners make is waiting too long to remodel or expand their business to accommodate their growth. They may be waiting until they hit a certain milestone or accumulate a certain amount of working capital. By then, it may be too late, with growth making heavy demands that the business can’t meet. And the business may be irreparably harmed by failing to deliver. Instead, financing a business expansion or remodeling can keep you from falling into the growth trap. Getting the right funding, such as a business expansion loan, enables you to put the tools in place for handling additional business before it happens. Not only can small business expansion loans help you better manage your business’s growth, but having the capital on hand can also propel more growth.

Business expansion loans also enable you to add critical resources to your existing operation to better manage your growth. Here are some ways additional capital can help your growing business:

  • Adding staff, especially those with specialized or technical skills

  • Expand your online presence and offerings

  • Expand/remodel your physical location

  • Add new equipment or technology

  • Add a new location

  • Franchise your business

  • Roll out new products/services

  • Expand into a new market

  • Create partnerships with other businesses

  • Acquire another business

  • Diversify into new businesses or markets

Don’t let business growth get the better of you. Pay attention to the signs, and have a plan for managing your growth. With our business expansion loans, you can access the growth capital you need to produce maximum results. If small business expansion loans sound like something you wish to explore, fill out our online form to find out how much you qualify for. To learn more about our small business expansion loans, revenue based financing, merchant cash advances or other flexible funding solutions, contact us today!