There are several reasons why you might consider a cash flow loan in lieu of another type of business financing. Some of the most common uses for cash flow loans include:
If you run a product-based business, empty shelves aren’t something you want to deal with. A cash flow loan could help you purchase the inventory you need to keep your customers happy and avoid sales dips.
When your business pays someone else to manufacture the products you sell, cash flow gaps can keep those products from making it into your customers’ hands. In that situation, you could use cash flow financing to fill a purchase order and keep your deliverables on schedule.
Maintaining seasonal operations
A cash flow loan is a good fit to help smooth out seasonal ups and downs in your cash flow. You could use a loan to cover the slower periods during the off season or get ready for the peak season by purchasing inventory or hiring and training new staff.
Expand your footprint
You may run an online business and decide to open a physical store. Or, you may run a brick-and-mortar operation and decide to open up a digital storefront. Either way, cash flow financing could give you the funding you need to pursue a new physical or virtual location.
Invest in marketing
Marketing is important for spreading the word about your business and widening your customer base. If you have a new product or service you’re planning to launch or you’re entering a new market medium, cash flow loans can help you cover your budget.
An out of the blue expense could throw you off track financially or put a pinch on your cash reserves. You can use cash flow financing to cover emergencies or other unforeseen costs without putting a strain on the business.
There’s more than one way to get cash flow financing. If you need a loan quickly, without having to offer collateral, here are five options to consider:
1. Short-term loans
Term loans are called that because you’re borrowing money and paying it back over a fixed term. A short-term loan typically has a repayment term of 12 months or less, though some may extend it a little longer.
Short-term loans can help you meet short-term needs, such as paying taxes or insurance premiums, hiring new staff or meeting payroll for the month. Loans can be repaid monthly, weekly or even daily, depending on the lender.
When considering short-term loans, look at the minimum and maximum loan amounts to understand whether you’ll be able to borrow enough to meet your needs. Also, take a look at the interest rates, fees and minimum requirements to qualify.
2. Business line of credit
A business line of credit is a little different than a term loan. Instead of getting a lump sum of funding, you can draw against your credit line as needed, only paying interest on what you use.
Business lines of credit can be unsecured, meaning you won’t need collateral. But, a line of credit may be more difficult to qualify for compared to other cash flow financing options, as lenders tend to look for strong credit and financials from borrowers.
Invoice financing or invoice factoring is a way to leverage your outstanding accounts receivable for a loan. The lender reviews your accounts receivable to see what’s owed, then uses that to determine a loan amount.
Depending on how the lender structures loans, you may be given a lump sum of funding which is then repaid when your receivables are paid. Some lenders may take over collection of those receivables for you. Either way, it’s a path to getting funding quickly when you need it.