Cash flow is the lifeblood of small businesses, but sometimes due to slow receivables or unforeseen circumstances, small business owners find themselves in a cash crunch. Being short of cash can be frustrating, stressful and disappointing, but with a bit of adaptability and careful planning, you can use this cash crunch as a learning experience to strengthen your small business's finances for the future.
Cash crunches can be especially nerve-racking for business owners that do not have adequate access to credit. Sometimes you might need to borrow money on a short-term basis in order to make payroll and pay rent, and keep your business running until your next big paycheck arrives. With that in mind, consider applying for a small business line of credit that is big enough to meet your company's needs.
Getting through a cash crunch is one of those occasional stresses that every small business owner needs to know how to navigate. Once you know the cause of your cash crunch, you can be proactive about finding a solution and building a stronger financial foundation for your company's future.
Cash crunches can be especially nerve-racking for small business owners that do not have adequate access to capital. Sometimes you might need to borrow money on a short-term basis in order to make payroll and pay rent, and keep your business running until your next big paycheck arrives.
Here are a few small business financing options to consider:
- Business Term Loans
Fully amortizing up to 5 year terms. Ideal for business owners with large single purchases or need to refinance debt. Fund marketing efforts, open new locations, or purchase equipment; all while building your business credit. What’s more, term loans can be funded in as little as 3 days and require less stringent underwriting guidelines than the SBA.
- Revenue Based Loans
A revenue based loan could be your business's lifeblood and provide it with several financial benefits. When your business is growing, chances are you'll need an injection of cash to continue its growth. Bank loans are often times too restrictive, time intensive and highly challenging to obtain these days. In this situation, a revenue based loan may be the best solution. If you use it wisely, a revenue based loan could do wonders for your business.
- Merchant Cash Advance
A Merchant Cash Advance (MCA) can provide business owners with an upfront fixed amount of cash in as little as 24 hours. The funding amount is based upon a percentage of the businesses credit card receivables or daily cash balances using historical credit card receipts and/or bank statements to determine the initial advance. The business pays back the advance, plus a percentage, often referred to as a discount factor, from a portion of their credit card receivables or cash available plus a percentage which is often referred to as a discount factor. The remittances are drawn from the business customer on a daily or weekly basis until the obligation has been met. An MCA is not technically a business loan, and as such MCA's are not limited in what rates they charge or what terms they establish and therefore often have high interest rates. For this reason it is very important for a business owner to be completely aware of how the MCA product works and how it could affect their business. MCA's are good options for small business owners who may not have strong credit but have lots of credit card activity or steady cash flow and need financing quickly.
- Cash Flow Loans
Even if your business is growing, you may find yourself needing extra cash to cover day-to-day expenses such as payroll, rent and inventory, or to pay for short-term projects that could grow your revenue in the long run. Uneven cash flow is one of the biggest challenges of business owners. For this type of business financing, lenders provide you funds and use your future expected cash flow as collateral for the loan. You’re essentially borrowing from cash that you expect to receive in the future by giving the lender the rights to a predetermined amount of these receivables. These are primarily used for working capital or take advantage of short-term ROI opportunities. Your credit scores will usually be checked, but they play less of a role. As the name indicates, the lender is more concerned with inspecting your cash flow (usually bank statements) to approve your application. Turnaround time is another great feature of a cash flow loan, as funding usually takes place in a matter of days.
At LVRG, we offer extensive solutions and targeted solutions to help small to mid size business owners optimize their cash flow and effectively manage their revenue cycle. Have questions about small business cash flow? Chances are, we've got answers. Here to help!