Small and mid-sized businesses, particularly those who are in the process of growing their business, are often limited by cash flow issues. Businesses are required to pay employees their payroll, acquire capital assets, and to advertise in an attempt to grow their customer base. In the meantime, many businesses have significant delays in receiving payments from customers which can hamstring their financial viability. There are many options for businesses who are facing these cash flow problems. There are costs involved with each of these options and the best method will often depend on the structure and interests of management. This article will present some of the common options available for businesses struggling with cash flow issue and the solutions in the way of short term financing options that often provide greater flexibility and real savings over more structured long-term loans.
A short term loan is one option for businesses looking for financing to assist their operations. Common types of loans include asset based lending loans or lines of credit (also known as revolving credit). Asset based lending loans are typically limited to a percentage of a type of asset- typically accounts receivable or inventory and are secured by these assets. Businesses who use asset based lending are required to submit statements regularly supporting their asset valuations and to be audited by their lenders regularly to support the asset based loans that they are undertaking. Typically speaking, asset based loans are easier to acquire than other forms of financing and have lower interest rates than unsecured loans.
Revolving lines of credit provide borrowers with the ability to access reserved cash when it is needed as opposed to taking out large loans are paying interest on these loans. The interest rates are commonly higher on revolving lines of credit than on long term loans and borrowers often have to pay a fee for the amount of funds reserved for loans, even if the funds are not actually borrowed. However, borrowers can borrow and fund operations as needed and in greater volumes during seasonal spikes in business, which provides borrowers with great flexibility for expanding their business quickly.
Loans often seem like a limiting factor to new business owners as interest and debt payments can become burdensome financially. However, as long as a business can earn more than the interest and compliance fees, short term loans can provide business owners with the ability to expand and grow their operations significantly over time.
Using a factoring company can make this whole process a lot simpler. Make sure to research the company that best fits your needs, and that have experience working with your companies industry.