Cash-flow Finance is a term that describes the method of working capital financing for small businesses. Businesses, both large and small, can be significantly affected by cash-flow problems. When cash flow is low, businesses need more funds to meet their short-term cash needs and may be forced to turn to credit loans to stay in business. Credit loans, however, carry very high-interest rates, and the balance required often does not justify the amount borrowed.
Short-term financing needs for small businesses can be alleviated by using Business Cash Flow Finance. These are small-scale unsecured loans that are given quickly with collateral (e.g., property). In most cases, business cash flow finance can be obtained within one week, sometimes in just one day. Lenders will review the business’s application, credit report, and financial statements. If these show potential lenders sufficient evidence that the company has a sound plan to repay the debt, approval for a loan will be fast. These loans generally have terms of up to twelve months for repayment of principal and between six and twelve months for interest.
Most business cash flow finance solutions require that businesses furnish information such as their year in business, start and end inventory levels, sales, gross profit amounts, cash management system, and cash flow forecasts. Lenders also want to know the number of new accounts receivable, accounts payable, and anticipated capital investments. The more information the lender requires, the faster the process will go.
To determine the amount of money needed, business cash flow projections will be made and used to calculate the amount of short-term financing required. Cash flow projections should account for three months of total receipts and payments and three months of expected sales and payroll. This calculation will be based on the assumption that the business is open during the three months. In this case, if the company does not receive any new customers during the period, most banks will require that a letter of credit application be provided. However, some banks may not require such a letter and may provide funding quickly.
Business cash flow finance can be obtained from various sources. A personal savings account is one option. This can be combined with business loans or used independently of such financing. A line of credit from a bank or other lender can be used as capital. The use of collateral will help the lender secure a more significant loan amount. Small business funding can be obtained through various types of commercial mortgage, business loans from banks and other private lenders, and equity loans from private investors.
Many banks offer lines of credit for small businesses to assist with the cash flow needs associated with these businesses. Typically, they are interest-free for a designated period. Many small businesses will take advantage of these financing options as this is a reasonable alternative to business loans with high interest rates. Another alternative is obtaining business loans with no interest. These loans are cash flow lending opportunities that do not require security or a down payment. Typically, a smaller amount of money is needed to obtain funding.
Businesses can also obtain a cash advance using non-secure means. Most of these sources are unsecured for the most part. Customers only need to have the ability to repay the balance and an agreed-upon repayment date. These options are suitable for small businesses with poor credit histories or companies that cannot generate a credit history. Businesses may also use cash advance funding for urgent business necessity expenses. If a business has experienced a decline in business profits, the amount of cash needed may be considered emergency funding.
Business cash flow issues are not unique to small businesses. They affect all types of companies, large and small. However, solutions to these problems can alleviate any potential problems with cash flow and business profitability.