When you own a small business you know that cash is king! More than 100,000 small businesses learned that the hard way when they had to shut their doors this year alone.
Regular cash flow can make or break a small business. Even when the inflow of cash slows down, businesses have to make payroll, update inventory, pay vendors, buy ad space, and pay the rent. The margin for error can be quite small.
As a result, small businesses need to be aware of the myriad of lending options and financial products available to help them stay afloat when cash flow dwindles. Knowing what those options are and how each work can save your American dream.
Traditional Bank Loans
While these loans are the most well known, they are not always the best option for business lending. These loans have fixed interest rates and are considered long-term loans that are often paid over 7 years.
Businesses should consider these products when they are looking to expand services offered or purchase large fixed assets that will increase income flow over the long run.
Among the most common options is asset-based products. These are loans or lines of credit that are backed by business collateral. Businesses can secure these loans by leveraging the assets they already own, things like equipment, property, or inventory.
These products demand little liquidity and are perfect for those short-term cash-flow needs.
Lines of Credit
This option allows businesses to use uncollected customer payments as collateral for financing. Some businesses have a naturally longer turn-around time for customer payments. Their own financial responsibilities don’t always wait for those payments to roll in. That’s when this type of product makes sense.
Interest rates, loan terms, and loan amounts vary depending on a number of factors, but these should be considered very short-term loans to cover things like payroll or inventory costs.
The Small Business Administration gives loans to smaller companies for a variety of reasons, though they are typical larger loans with longer terms.
These are not ideal for cash flow coverage but can be a good option for businesses that want to expand services, make large purchases, or simply get up and running. There is a significant amount of paperwork and wait time involved in this loan process, so be prepared.
If you own a small business, you know how important it can be to be able to access financing in a hurry. Stay informed about your financing options and you’ll sleep better at night knowing that a safety net is nearby.
Raj Kumar is a qualified business/finance writer expert in investment, debt, credit cards, Passive income, financial updates. He advises in his blog finance clap.