Cash flow is the life blood of every small business. Revenue is essential for businesses to invest and grow. However, a lack of cash flow can also bring a small business to its knees. In fact, insufficient revenue and profit is one of the main reasons 8 out of 10 businesses will fail.
This creates a difficult balancing act for small business owners and managers. How does a small business grow, develop revenue streams, and continue to manage their obligations like employee pay, vendor orders, and utilities? The cash flow is strong and further investment in the business could increase cash flow significantly, but where is that investment supposed to come from?
While there is no magic wand that can provide the answer, a cash flow loan is one important tool that allows small businesses the opportunity to invest in their future.
Even though these businesses may not meet the strict lending requirements set out by banks, there could be other creative borrowing options like cash flow loans that look at the underlying measures of success rather than broad qualifying criteria that doesn’t tell the full story about the business.
What Is a Cash Flow Loan?
Cash flow loans are a new concept to many borrowers. Since this is a non-traditional form of lending, you may not have heard about cash flow loans from your banker.
Simply put, cash flow loans allow businesses to use their business cash flow as collateral to secure a loan. This is perfect for rapidly growing businesses with good cash flow that need additional funds to take advantage of emerging opportunities.
Since cash flow is the main focus, factors like individual credit scores play less of a role than they would in traditional lending scenarios. For this reason, cash flow loans are sometimes more accessible to borrowers who would otherwise fail to qualify for a traditional loan due to their credit history or lack of business financials.
Simply put, a cash flow loan looks at a current snapshot of the health of the business to determine if the business can secure and support funding.
Why Cash Flow Is So Important
If you are currently running a business, then you know the importance of cash flow. Not only does cash flow cover regular expenses, but a cash flow surplus allows businesses to invest in their own operations and grow more rapidly.
Small businesses, especially new businesses, do not always have the funds on hand to pursue new revenue streams. Cash flow management can be very difficult as small businesses have to balance their day-to-day expenses with investing in growth.
In fact, cash flow is so important that it can be one of the most valuable ways to assess the strength and potential of a business.
Quite simply, businesses with a positive cash flow have the ability to invest in areas of their operation that will allow them to further grow their cash flow. As the old saying goes, success breeds success.
Comparing Cash Flow Loans vs. Traditional Bank Loans
Many business owners will go to their usual bank branch to seek lending for their small business only to leave disappointed. This is especially true for new small businesses that are rapidly building their operation, expanding into new areas, and pursuing lucrative opportunities.
Banks have a standard formula when looking at small business lending. Individual credit scores play a large role in determining if lending will be granted. In addition, banks often want to see a minimum of two years of business financials. For businesses that are less than two years old, getting traditional bank lending is often an uphill battle.
When securing a cash flow loan, lenders are much more interested in seeing the cash flow management of the business. Future cash flow potential may also be taken into consideration. These requirements may be easier for small business owners to satisfy.
Growing Business with a Cash Flow Loan
There could be dozens of opportunities for a small business to grow their revenue. Of course, taking advantage of new revenue streams means having cash available. This is where strong cash flow management and, potentially, a cash flow loan come into play.
When the bank says they cannot grant a traditional loan, what are business owners to do? Sit back and accept the situation as their competitors take control of the market?
A cash flow loan is an important tool for businesses that have proven cash flow but cannot meet the requirements laid out by banks. With a cash flow loan, business owners can invest in their operation, their people, and their own future success.
Want to learn more about cash flow loans and if this is the solution your business needs to grow to its full potential? Contact us today and apply for a cash flow loan from LVRG Funding – the number one provider of small business funding solutions.
Charles Barr, Co-Founder & Director of LVRG Funding, a "boutique" small business funding company dedicated to helping America's small businesses thrive and grow. Charles is highly dedicated to the genesis of professional development, social networking and civic engagement, with a passion for cultivating creativity, entrepreneurship and a spirit of community.