Even if your small 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 small businesses throughout all industries. In a perfect world, you’d walk into your local bank and walk out with a business loan long before you wound up in a cash crunch. Well, those days are long gone. If you haven’t been in business at least two years, or lack good credit and collateral, chances are a traditional bank loan is never going to happen.
In order to deal with this shortfall, a cash flow loan may be your best option. 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.
A cash flow loan may be used for any business expense, but some common uses are:
- Working capital
- High ROI short-term opportunities
- Purchasing highly-discounted inventory
- Business expansion
Points to consider when determining if a cash flow loan is right for your small business:
- Will it help you take advantage of inventory discounts? Imagine you have an opportunity to buy bulk inventory at a discount. A cash flow loan can help if you don’t have the money to make the purchase.
- Will it help you say “yes” to a job? Say you own a restaurant and are asked to cater a big event in the near future. To jump on the opportunity, you’d need to hire a few more servers, and you don’t have the cash. A line of credit or short-term loan could allow you to say “yes.”
- Are you entering a slow period? Another example: You own an ice cream shop and winters are slow. Ideally, you’d budget for this by saving more in the summer months, but a cash flow loan could get you through in a pinch.
- Do you have a lot of outstanding invoices? Many small businesses experience uneven cash flow because their customers pay invoices weeks or months after receiving their product or service. If you’re in this situation, a short-term small-business loan could bridge the gap, but consider invoice financing instead.
Short-term cash flow loans are best used for short-term projects that would divert money from day-to-day expenses but ultimately grow your business, like taking on a big contract with a major company or adding extra seating in your restaurant. If you need cash fast, a cash flow loan may be your lifeline.
LVRG Funding is one of the nations largest and most trusted resources for small business cash flow loans. Want to know if a cash flow loan is right for your business, give us a call (855) 998-LVRG. We're here to help!