Cash Flow Loans

Why Cash Flow Loans Are Growing in Popularity Among Small Businesses

Why Cash Flow Loans Are Growing in Popularity Among Small Businesses

Why Cash Flow Loans Are Growing in Popularity Among Small Businesses

Cash flow is the life blood of every small business. Revenue is essential for businesses to invest and grow. However, a lack of cash flow can also bring a small business to its knees. In fact, insufficient revenue and profit is one of the main reasons 8 out of 10 businesses will fail.

This creates a difficult balancing act for small business owners and managers. How does a small business grow, develop revenue streams, and continue to manage their obligations like employee pay, vendor orders, and utilities? The cash flow is strong and further investment in the business could increase cash flow significantly, but where is that investment supposed to come from?

While there is no magic wand that can provide the answer, a cash flow loan is one important tool that allows small businesses the opportunity to invest in their future.

Even though these businesses may not meet the strict lending requirements set out by banks, there could be other creative borrowing options like cash flow loans that look at the underlying measures of success rather than broad qualifying criteria that doesn’t tell the full story about the business.

What Is a Cash Flow Loan?

Cash flow loans are a new concept to many borrowers. Since this is a non-traditional form of lending, you may not have heard about cash flow loans from your banker.

Simply put, cash flow loans allow businesses to use their business cash flow as collateral to secure a loan. This is perfect for rapidly growing businesses with good cash flow that need additional funds to take advantage of emerging opportunities.

Since cash flow is the main focus, factors like individual credit scores play less of a role than they would in traditional lending scenarios. For this reason, cash flow loans are sometimes more accessible to borrowers who would otherwise fail to qualify for a traditional loan due to their credit history or lack of business financials.

Simply put, a cash flow loan looks at a current snapshot of the health of the business to determine if the business can secure and support funding.

Why Cash Flow Is So Important

If you are currently running a business, then you know the importance of cash flow. Not only does cash flow cover regular expenses, but a cash flow surplus allows businesses to invest in their own operations and grow more rapidly.

Small businesses, especially new businesses, do not always have the funds on hand to pursue new revenue streams. Cash flow management can be very difficult as small businesses have to balance their day-to-day expenses with investing in growth.

In fact, cash flow is so important that it can be one of the most valuable ways to assess the strength and potential of a business.

Quite simply, businesses with a positive cash flow have the ability to invest in areas of their operation that will allow them to further grow their cash flow. As the old saying goes, success breeds success.

Comparing Cash Flow Loans vs. Traditional Bank Loans

Many business owners will go to their usual bank branch to seek lending for their small business only to leave disappointed. This is especially true for new small businesses that are rapidly building their operation, expanding into new areas, and pursuing lucrative opportunities.

Banks have a standard formula when looking at small business lending. Individual credit scores play a large role in determining if lending will be granted. In addition, banks often want to see a minimum of two years of business financials. For businesses that are less than two years old, getting traditional bank lending is often an uphill battle.

When securing a cash flow loan, lenders are much more interested in seeing the cash flow management of the business. Future cash flow potential may also be taken into consideration. These requirements may be easier for small business owners to satisfy.

Growing Business with a Cash Flow Loan

There could be dozens of opportunities for a small business to grow their revenue. Of course, taking advantage of new revenue streams means having cash available. This is where strong cash flow management and, potentially, a cash flow loan come into play.

When the bank says they cannot grant a traditional loan, what are business owners to do? Sit back and accept the situation as their competitors take control of the market?

A cash flow loan is an important tool for businesses that have proven cash flow but cannot meet the requirements laid out by banks. With a cash flow loan, business owners can invest in their operation, their people, and their own future success.

Want to learn more about cash flow loans and if this is the solution your business needs to grow to its full potential? Contact us today and apply for a cash flow loan from LVRG Funding – the number one provider of small business funding solutions.

 

A cheesy pun on life insurance that may just save your business.

There's an old time pun that asks, when is the best time to buy life insurance? The answer being, the minute before you know you're going to need it. While this old pun isn't all that funny, the premise is highly relevant to owning a small business. Life insurance to a person, is cash flow to a business. No life insurance? No protection. No cash flow? Well, you can guess the ending there too...

We speak with small business owners every single day who are in desperate need of a loan to cover emergency situations. The reality is, at any given moment a pipe could burst, a machine can break, an opportunity for expansion may present itself, or an offer to buy a large quantity of inventory at a deep discount may pop up. Bottom line, we don't know what the future may bring; so it's best to be prepared.

Did you know - 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. After-all, who wouldn't want a cushion of cash on hand for a rainy day? Click here to learn more.

Cash flow doesn't have to be complicated. Indeed, most cash flow problems have common causes. The following are the three factors that are most often at the root of cash flow problems:

1. Not Paying Attention to Expenses - Many businesses end up in a cash flow crunch due to unexpected expenses (for example, costly repairs to equipment, replacing malfunctioning technology or a natural disaster) or too much money going out each month (such as ongoing expenses that have quietly crept up to an unsustainable level). Resolving a cash flow crisis requires that business leadership take a renewed, vigorous look at their ongoing cost structure. Every business owner should have a rigorous process in place to track expenses on a monthly basis and project future expenses for the months ahead.

2. Uncertainty About Future Cash Flow - Some businesses are so caught up in the day-to-day grind of getting work done and paying bills that they don’t take time to anticipate what's coming in the next few months. Maintaining healthy cash flow requires a long-term vision.

3. Slow-Paying Customers - Many cash flow problems are caused by a delay in receivables, such as when a company’s customers or clients are slow in paying their bills. Did you know small businesses have $825 billion in unpaid invoices? Far too many companies allow their customers to become delinquent in paying them, often without fully realizing the problem until it is having a major impact on their cash flow. Business owners need to put consistent policies and procedures in place to ensure that customers pay in a timely fashion. It's especially important to clarify your payment terms and expectations on every invoice, whether that’s “payment due within 30 days” or “payment due upon receipt.” Don’t assume that your customers automatically know what to expect be clear about when you expect to be paid for your products or services.

More than anything, small businesses must be prepared to fuel their business with operating cash flow at all times. By planning at least the worst, average, and best case scenarios for the near future, small business owners can minimize damage from external influences, while maximizing opportunities during an upward momentum.  All of these can be best achieved through an efficient and stable cash flow, often supplemented by obtaining small business capital. Be proactive, plan ahead, and create a relationship with a reputable funding source now, not in an emergency situation when you're forced to accept anything that's thrown at you. As always, we're here to help!

How to Project a Cash Flow Statement for Your Small Business

Even with the fanciest brand name, marketing gimmick, or the best tasting product, without a healthy flow of cash, no company can survive.  Having a solid cash flow is not just about managing a healthy business; it’s a matter of life or death for an organization.  Though it may sound extreme, small business owners must pay attention to their cash flows on a regular basis. 

The importance of strong cash flow is aptly stated in the common expression "cash is king." The premise of this is that having cash puts you in a more stable position with better buying power. While you can borrow money at times, cash affords you greater protection against loan defaults or foreclosures. Cash flow is distinct from cash position. Having cash on hand is critical, but cash flow indicates an ongoing ability to generate and use cash.

Strong revenue but still don't qualify for traditional financing? A business cash flow loan may do the trick!

Keeping Up With Debt

When you borrow money to buy equipment and inventory, you essentially use future cash flow to make your purchases. Inherently, you need positive future cash flow to pay for your debt commitments. Companies commonly have long-term loans and short-term credit accounts with vendors. Each loan requires monthly payments. The obligation to make these payments on an ongoing basis restricts your free cash flow, which is money available to invest in growing your business.

Growth

Along with debt management, strong cash flow provides the comfort and capabilities a business needs to invest in growth. Building new locations, investing in marketing and advertising, renovating your storefront, improving technology, providing more training and purchasing more inventory are among the ways your business can grow and improve with strong positive cash flow. Getting to a position of excess cash flow helps your company operate in a strategic, proactive way, rather than a reactive, defensive way.

Flexibility

Cash flow also gives your business greater flexibility in responding to emerging dilemmas or making critical decisions. Confidence in cash flow makes it easier to make critical purchases in the near term rather than waiting. It also allows you to disperse cash in the form of dividends to shareholders or owners. This strengthens the bond between the company and its owners. You also have the ability to offer favorable credit terms to attract new buyers if you are less desperate for cash.

Cash flow is also extremely important for times of growth. Paradoxically, especially for small business owners, great opportunities can turn out to be disastrous occasions when cash flow is not carefully considered in advance. This is especially true if your source of growth is coming from a business-to-business customer. More sales posted to your accounts receivable (because most business customers will want to delay payment through invoices) while continuing to pay in advance for your costs, expenses, and inventory, can lead you into a deep dark hole of delinquency. You should diligently study your cash flow statement and cash cycles prior to committing to the opportunity. 

Small Business Cash Flow Strategy: How to Scale Up and Optimize Your Cash Flow Plan.

Cash flow statements can easily tell you how much revenue you have coming in and how much you have going out. The data on the cash flow statement can help indicate your enterprise’s liquidity and predict where your company will stand financially in the future. Unless you can count toothpicks like Raymond in the “Rain Man,” it is essential to sit down and take the time to calculate or retrieve accurate accounting cash ratios for your business prior to undertaking a growth opportunity. Too many intelligent owners make the mistake of visualizing cash flow or counting numbers in the head. Learn about your quick ratios, current ratios, inventory turnovers, net working capital, and average payment days. Invest time and resources to build an accurate financial picture of your business, especially regarding your cash flow.

Cash flow problems can lead to business failure, but you can build some great habits in the new year. Building accurate forecasts can be challenging, but it will help you prepare for money shortfalls and make intelligent decisions when you have plenty of cash on hand.

6 Valuable Tips a Small Business Owner Can Integrate to Keep Adequate Cash Flow

Here are some tips and tricks to get your cash flow statement under control.

Know what belongs on your cash flow statement - Figuring out what to include on your cash flow statement is half the battle. There are three major areas to include:

  • Operating activities: These include revenue from selling products and services, interest and dividends and other cash receipts. Outflow from operating activities includes payroll costs, payments to suppliers and vendors, rent, utilities, insurance, taxes, and other overhead costs.
  • Investing activities: These include sales of business assets (other than inventory), loan payments and other sales that are not part of the average course of business. Outflow includes purchases of capital equipment and loans granted by the company.
  • Financing activities: These include borrowed money and the proceeds from the sale of the securities. Outflow incorporates debt service and dividend payments.

Build a payment schedule

Knowing when you get paid is crucial to creating an accurate cash flow statement. Try calendaring the dates when you invoice each month so you can generate a reliable revenue model for each month. Even though you set a regular schedule, don’t be too idealistic about your clients’ payment habits. Invoices often take at least 30 days to roll in and many clients are late with those payments.

Make sales predictions

Cash flow statements include accounts receivable, accounts payable, inventory, capital expenditures, and debt service. By making sales predictions, you can establish that your company will have enough cash each month to cover what you owe.

Build a sales forecast that projects several months ahead—or one that covers all of 2017. If you’ve been in business for more than a year, base your sales predictions on last year’s revenue. If you’re just starting a business, project sales based on research into your competition.

Plan for the unexpected

Unexpected costs will sneak up on you, so prepare in advance. Equipment repairs, new hires, or a sudden increase in material costs shouldn’t send you scurrying for cash. Small business consultants suggest that you save at least 10 percent of your monthly revenue for minor emergencies.

4 Key Small Business Tips on How to Escape a Cash Crunch

If you do find yourself in a pinch, Fundbox advances the full value of your invoice, whether it be covering payroll or an urgent equipment repair—or even if you want to invest in growing your business by taking on a new project. With Fundbox, funds can be available in your bank account as soon as the next day, and you can choose between 12 and 24-week repayment terms. Repay early, and they’ll waive all remaining fees. Use the cash to cover expenses while you wait on invoices to come in.

LVRG Funding is one of the nations largest and most trusted resources of small business cash flow funding and we do so with speed and transparency.  Want to know if a cash flow loan is right for your business, give us a call (855) 998-5874. We're here to help!

 

Is Cash Flow Lending in your Business Future?

Spring is here and we are drawing nearer to mid year. The time to plan for a big 3rd and 4th quarter is now! By pondering your business goals and planning the steps you will take to achieve them, you’ll be better able to assess your businesses’ financial needs going forward. If you think you’ll need additional capital for marketing, advertising, working capital, or growth, you can consider solutions such as cash flow lending and investigate your business financing options ahead of time. It’s always smart to know your options before you really need the money!

Cash flow doesn't have to be complicated. Indeed, most cash flow problems have common causes. The following are the four factors that are most often at the root of cash flow problems, as well as advice on how to avoid or overcome them.

1. Not Paying Attention to Expenses - Many businesses end up in a cash flow crunch due to unexpected expenses (for example, costly repairs to equipment, replacing malfunctioning technology or a natural disaster) or too much money going out each month (such as ongoing expenses that have quietly crept up to an unsustainable level). Resolving a cash flow crisis requires that business leadership take a renewed, vigorous look at their ongoing cost structure. Every business owner should have a rigorous process in place to track expenses on a monthly basis and project future expenses for the months ahead. A good business accountant can work with you to make sure you have an eye on the overall health of your business cash flow and are better positioned to anticipate challenges as they arise.

2. Uncertainty about Future Cash Flow - Some businesses are so caught up in the day-to-day grind of getting work done and paying bills that they don’t take time to anticipate what's coming in the next few months. Maintaining healthy cash flow requires a long-term vision. Most accounting experts recommend that every business maintain a six-month cash flow projection with expected revenue and expenses, while also adjusting for any seasonal peaks and valleys.

3. Slow-Paying Customers - Many cash flow problems are caused by a delay in receivables, such as when a company’s customers or clients are slow in paying their bills. Far too many companies allow their customers to become delinquent in paying them, often without fully realizing the problem until it is having a major impact on their cash flow. Business owners need to put consistent policies and procedures in place to ensure that customers pay in a timely fashion. It's especially important to clarify your payment terms and expectations on every invoice, whether that’s “payment due within 30 days” or “payment due upon receipt.” Don’t assume that your customers automatically know what to expect be clear about when you expect to be paid for your products or services.

Potential Reasons to Consider Cash Flow Lending

There are a lot of factors to consider when calculating your need for financing in the coming year. Here are some of the most important:

  1. Equipment

    Will your business need to invest in new equipment, such as machinery or computers, in the coming year? The initial outlay to purchase equipment (or even start a lease) can leave you temporarily short of cash. In this case, cash flow lending can be an ideal solution.

  2. Facility

    Do you plan to open a new location, expand to a bigger location, or move your business to a new address for whatever reason? The money required for moving—building out a new space, payments due at lease signing, not to mention the expense of hiring movers—can be hard to come up with all at once. Cash flow lending can help you get over the crunch so you’ll have a smooth move.

  3. Marketing

    Marketing and advertising are vital investments for any small business hoping to succeed in today’s highly competitive environment. If you’re planning to increase your marketing budget next year, as many small businesses are, cash flow financing can be a great way to get the money you need.

  4. Human resources

    In order to grow, your business needs to hire employees—and train them, and wait for them to get up to speed. It may take a while for the new hires to pay off in increased sales. In the meantime, you might struggle to make payroll. Fortunately, cash flow financing offers a simple way to tap into your unpaid invoices so you can rest assured that your employees will always get paid on time.

What Is Cash Flow Financing?

Small Business Cash flow lending is loaning money to companies based on the projected future cash flows of that company. A small business cash flow lender grants a loan that is backed by the business cash flows. By definition, this means that a company borrows money from expected revenues they anticipate they will receive in the future. Credit ratings are a bit more important in this form of lending, in addition to historical cash flows.

For example, a small business that is attempting to meet its payroll obligations might use cash flow finance to pay its employees now and payback the loan, any interest on the profits and revenues generated by the employees on a future date. These loans do not require any type of physical collateral like property or assets. Instead, small business cash flow lenders examine expected future company incomes, its credit rating and its enterprise value.

The advantage to this method is that a company can obtain financing much faster, as an appraisal of collateral is not required, and underwriting time is minimal.

Institutions underwrite cash flow based loans by determining credit capacity. Typically, they will use EBITDA (a company’s earnings before interest, taxes, depreciation, and amortization) along with a credit multiplier to calculate this figure. This financing method enables lenders to account for any risk brought on by sector and economic cycles. During an economic downturn, many companies will see a decline in their EBITDA, while the risk multiplier used by the bank will also decline. The combination of these two declining numbers will reduce the available credit capacity for an organization.

Cash flow loans are better suited to small businesses that maintain high margins on their balance sheets or lack enough in hard assets to offer as collateral.

Small businesses that meet these qualities and are a perfect fit to utilize cash flow loans include: retail stores, coffee shops, craft breweries, restaurants, healthcare practices, manufacturers and wholesalers. Interest rates for these loans are typically higher than the alternative due to the lack of physical collateral that can be obtained by the lender in the event of default.

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
  • Payroll
  • Marketing
  • Business expansion

Have outstanding invoices? There are many situations where invoice financing can help. Invoice financing works best for small businesses that don’t get paid right away, but instead invoice their customers and wait to receive payment in 30, 60 or 90 days (or even later).

Sometimes, waiting for those customers to pay you can really put a crimp in your cash flow. After-all, if more money is flowing out than flowing in, you are setting yourself up for a cash crunch; which is why many small businesses wind up out of business. Theoretically, your business is doing well because you have lots of outstanding invoices, but in reality, you don’t have the cash on hand to handle immediate expenses such as payroll and inventory. This is where invoice financing comes in handy.

Invoice financing can be useful for very small businesses, and even freelancers from which an unpaid invoice can make the difference between paying that month’s mortgage or not. However, it’s also valuable for businesses with big clients that frequently are slow to pay, such as government agencies or corporations that may have a lot of red tape involved in the payment process.

Invoice financing works best as a short-term financing option that can provide the working capital you need to get over the hump until you get paid. Because you get your money quickly, invoice financing is an ideal solution when an unexpected cash crunch hits and you can’t wait for a traditional bank loan. It’s also a great solution when you don’t need a small business loan, just a little bit of extra cash.

Ready to grow your business? If so, we have options and we're ready to help!

 

Strong revenue but still don't qualify for traditional financing? A business cash flow loan may do the trick!

What is Small Business Cash Flow Lending?

Small Business Cash flow lending is loaning money to companies based on the projected future cash flows of that company. A small business cash flow lender grants a loan that is backed by the business cash flows. By definition, this means that a company borrows money from expected revenues they anticipate they will receive in the future. Credit ratings are a bit more important in this form of lending, in addition to historical cash flows.

For example, a small business that is attempting to meet its payroll obligations might use cash flow finance to pay its employees now and payback the loan, any interest on the profits and revenues generated by the employees on a future date. These loans do not require any type of physical collateral like property or assets. Instead, small business cash flow lenders examine expected future company incomes, its credit rating and its enterprise value.

The advantage to this method is that a company can obtain financing much faster, as an appraisal of collateral is not required, and underwriting time is minimal.

Institutions underwrite cash flow based loans by determining credit capacity. Typically, they will use EBITDA (a company’s earnings before interest, taxes, depreciation, and amortization) along with a credit multiplier to calculate this figure. This financing method enables lenders to account for any risk brought on by sector and economic cycles. During an economic downturn, many companies will see a decline in their EBITDA, while the risk multiplier used by the bank will also decline. The combination of these two declining numbers will reduce the available credit capacity for an organization.

Cash flow loans are better suited to small businesses that maintain high margins on their balance sheets or lack enough in hard assets to offer as collateral.

Small businesses that meet these qualities and are a perfect fit to utilize cash flow loans include: retail stores, craft breweries, restaurants, healthcare practices, manufacturers and wholesalers. Interest rates for these loans are typically higher than the alternative due to the lack of physical collateral that can be obtained by the lender in the event of default.

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

  • Payroll

  • Marketing

  • Business expansion

Most small business cash flow loans come with either a fixed daily (every business day) or weekly ACH payment. Repayment for a small business line of credit is automatically deducted on a weekly basis. While some lenders still accept payment by check, electronic payments have become increasingly common, particularly with online lenders.

Electronic Payments are Good for the Lender and Good for the Borrower

A daily or weekly ACH debit makes sense for lenders because it reduces the costs associated with processing a loan payment, ensures that payments are made in a timely fashion, and makes it possible for the lender to identify potential repayment issues within a couple of days, rather than several weeks—giving them enough time to try to help borrowers get back on sound financial footing and meet their commitments.

  • ACH payments save the business owner money - roughly $1.22 per check

  • It is convenient for the borrower who doesn’t need to take the time to write a check (particularly if the ACH debits are scheduled and automatic)

  • The regular and timely payments help build and maintain a strong business credit profile

Daily or weekly debits, as opposed to a monthly debit, reduces the size of each periodic payment making it easier for many borrowers to smooth their cash flow and avoid contributing to “lumpiness” in having large expenses due at the end of the month. This type of electronic direct debit makes capital available to some borrowers who might not qualify within a more traditional payment model.

Making ACH Business Loan Payments Work for Your Business

Millions of ACH transactions happen every day, but that doesn’t mean much if you can’t make it work for your business. With that in mind, here are 3 things that will help you do just that:

#1. Make sure you have the right kind of cash flow to accommodate the periodic payment frequency. If most of your monthly revenue is attributed to a handful of customers that make payments at the end of every month, a daily or weekly ACH pull from your business checking account might not work and may disqualify you from some loan types. This is one reason most online lenders want to see the last three or four months of bank statements. They want to make sure your cash flow will support the debit frequency (daily or weekly).

#2. Make sure you understand the amount that will be pulled with every periodic payment: A fixed payment will likely be easier to budget for. You’ll also want to determine if payments are only made on weekdays or if they will also take place on the weekends. The more you understand about the process upfront, the better you will be able to budget and prepare for each periodic payment.

#3. Make sure you understand what happens if you don’t have sufficient funds in your account: Nobody wants this to happen, but if it does, what does that mean for your loan? Making sure there is always enough in the account to make the automatic payment needs to be a priority, but sometimes circumstances might leave a business owner short. Most of the time, you’ll know before the payment is due. If that’s the case, reach out to the lender before the payment is attempted to try to make other arrangements.

Making payments electronically is an innovation designed to make small business loan payments seamless and easy for both the borrower and the lender. Ready to see if an ACH small business loan makes sense for your business? Call (855) 998-5874 or click below.