Did you know that cash flow problems are one of the leading causes of business failure? If a business has good cash flow, it has enough funds to pay its expenses and any debt repayments that it may have, on time.
Sometimes even profitable businesses need cash flow financing to help them smooth over cash flow fluctuations. Cash flow financing allows you to borrow against your expected business cash flow in the short-to-medium term future.
There is a range of business cash flow financing options, including:
- lines of credit
- invoice financing
- unsecured business loans
- and business credit cards.
We’ll now take a look at each of these options in some more detail.
Lines of credit
A business line of credit is similar to a business credit card, except that it’s secured by a business asset to lower the lender’s risk (and the interest rate). Commercial or residential property is the preferred form of security of most lenders.
A business line of credit allows a business to automatically access loan funds up to a pre-set limit to help overcome any cash flow issues. Interest is charged on any credit provided.
An overdraft facility is a cash flow financing option that is attached to a business bank account. It allows funds to be withdrawn even if there are no funds in the account, up to a pre-set overdraft limit. Interest is charged on any overdrawn funds.
Invoice financing (also known as invoice factoring) allows a business to immediately access money that is owing to them from their customers. Some businesses extend credit accounts to their customers that give them a certain time to pay for products or services (for example, 30-day accounts).
If you have this business model and you have cash flow issues, you may be able to sell your invoices to specialist lenders or factoring companies to help you overcome any cash flow issues.
Unsecured business loans
Unsecured business loans are loans that are approved without any collateral security needing to be provided. However, it’s important to understand that these types of loans have higher interest rates than secured loans.
Business credit cards
Business credit cards are another cash flow financing option, though they can have high-interest rates.
Key cash flow financing considerations
The most appropriate cash flow financing option for your business will depend on your financial circumstances. For example, whether:
- you have ongoing cash flow financing needs (where a line of credit, overdraft facility or business credit card may be suitable options).
- your needs are one-off (where an unsecured business loan may be an option).
- you have a significant number of debtors (and invoice financing is an option).
It will also depend on the cost of the financing option (which includes the interest rate plus any other fees or charges). It’s also important to consider whether your business has genuine cash flow problems and is otherwise viable and profitable if you can obtain cash flow finance.
If your business isn’t profitable, cash flow financing won’t be an ongoing solution. You will just temporarily mask deeper financial problems and get your business deeper into debt.
How we can help
Choosing the most appropriate cash flow financing option for your business is a crucial decision if you have cash flow issues.
At ARG Finance, our experienced team of finance brokers can help you to find the right cash flow financing solution. We’ll take the time to understand your needs before recommending a lender and cash flow finance option for you.
Contact us today to find out how you can overcome cash flow financing issues that you may have with your business!
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