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10 Tips to Manage Your Business Cash Flow with a Small Business Loan or a Merchant Cash Advance

There are many viable options available to businesses when managing cash flow. By carefully evaluating your options, you can find the best solution for your business; it may be a business loan, a business line of credit or more likely, a merchant cash advance.


Romi Levine
Romi Levine
June 27, 2022

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As a small business owner, you know that cash flow is king. If you're not careful, it's easy to get into a situation where you're constantly chasing payments and struggling to keep up with expenses. While a business loan is oftentimes considered ideal, they’re difficult to get from banks, and should you receive one, the loan size is usually smaller than what you would have expected. This article will attempt to review the best small business loan options available, and what alternatives exist to help you better manage your small business finances, such as invoice factoring, business lines of credit or merchant cash advance.

Small Business Loans

One way to manage your cash flow and ensure that you always have the funds you need is to take out a loan.

Loans can provide a much-needed cash infusion when facing a slow period or unexpected expenses.

For example, if you have a large project that requires a significant upfront investment, a loan can help you cover the costs without putting undue strain on your business. Small businesses can also use loans to smooth out seasonal fluctuations in cash flow. For instance, if your business experiences a lull in sales during the summer months, a loan can help you cover your operating expenses until the company picks up again.

And, because they're typically repaid over time, they don't put as much strain on your cash flow as other forms of financing, such as credit cards or lines of credit.

Of course, taking out a loan is not without risk. If not appropriately managed, loans can lead to financial difficulties for your business. As such, it is essential to consider whether taking out a loan is the right decision for your business.

Additionally, small business loans are tough to come by. Small business loans were already difficult to come by for small business owners pre-pandemic, and during the pandemic were even more difficult to acquire. While we’re certainly not out of the woods yet with regard to COVID-19, it would seem that the paradigm continues and it’s still next to impossible for small business owners to acquire a small business loan. In cases where a small business owner can get an approval, the approval amount is usually smaller than desired and the payback term may also be less than optimal. 

“Which type of loan is best for your business will depend on your specific financial situation”

1. Short-Term Loans vs. Long-Term Loans

Short-term loans may provide the quick infusion of cash you need, but they typically come with high-interest rates and short repayment periods.

Long-term loans may have lower interest rates but can tie up your cash flow for years.

Which type of loan is best for your business will depend on your specific financial situation.

For example, a short-term loan may be the best option if you need cash to cover a one-time expense, such as an emergency repair. On the other hand, a long-term loan may be a better fit if you're looking to finance a long-term project, such as an expansion.

2. Compare Interest Rates and Terms Among Different Lenders

If you're considering taking out a loan to manage your small business cash flow, shop around for the best rates and terms. Many lenders are willing to work with businesses, so you should have no trouble finding one that meets your needs.

Some lenders may offer lower interest rates, while others may have longer repayment terms. It's crucial to find the right balance for your business. You don't want to end up paying more in interest than you can afford, but you also don't want a loan that takes too long to repay.

Just read the fine print carefully before signing any loans — you don't want to get caught in a trap of high-interest rates and fees. Considering applying for a business loan? Read 7 Tips When Negotiating For A Business Loan.

Small Business Loan Alternatives

Alternatives to loans include lines of credit, merchant cash advances, and invoice factoring. However, the most important thing to do if you are struggling with cash flow is to understand your numbers.

“With some planning and effort, you can better manage your cash flow and keep your finances on track”

3. Understand Your Numbers and What Fluctuations May Occur

As a large or small business owner, it's essential to understand the money that comes in and goes out of your business and how it changes.

Cash flow can fluctuate for a variety of reasons. For example, if you have a lot of inventory or big projects, your cash flow may be higher than usual. On the other hand, if you're waiting on customer payments or have unexpected expenses, your cash flow may be lower than usual.

Keeping tabs on your cash flow can help you anticipate and plan for these fluctuations. That way, you can avoid surprises and manage your finances more effectively.

To get started, track your cash flow over a period of time so you can see patterns and trends. Then, create a budget to help you keep your cash flow in check. With some planning and effort, you can better manage your cash flow and keep your finances on track.

4. Use Technology to Your Advantage

In today's business world, there is no excuse for not using technology to your advantage. There are many software programs and applications available that can help you better manage your business cash flow.

By automating invoicing and payments, you can free up time to focus on other aspects of your business.

Additionally, many accounting programs offer features that can help you track expenses and revenue.

In addition to accounting programs, many online tools can help you track your cash flow. Using these tools, you can get a real-time view of your business finances and make more informed decisions about managing your money.

By using technology to your advantage, you can gain better insight into your cash flow and make more informed decisions about how to manage it.

5. Lines of Credit

A line of credit is similar to a loan in that it gives you access to funds when you need them. However, lines of credit typically have lower interest rates than loans, and they don't need to be repaid all at once. Instead, you can make monthly payments, similar to a credit card.

Another advantage of a line of credit is that you only pay interest on the portion of the line of credit that you use. For example, if you have a $100,000 line of credit but only borrow $50,000, you'll only need to pay interest on the $50,000.

Lines of credit can be a beneficial tool for businesses that experience seasonal fluctuations in cash flow. By having a line of credit in place, you can avoid the need to take out a loan every time your cash flow dips.

An Asian waitress smiles while inputting an order in the Asian restaurant Point-of-Sales cash register.

6. Merchant Cash Advances

A merchant cash advance is another option for businesses that need quick access to cash.

With a merchant cash advance, you sell a portion of your future sales in exchange for an upfront lump sum of cash. The amount you receive is based on your average monthly credit card sales. The main advantage of this type of financing is that it's quick and easy to qualify for. You don't need to put up any collateral, and the funding can be available in as little as 48 hours.

The downside of merchant cash advances is that they typically have high-interest rates. A small business owner can expect to pay rates of approximately 5% to 15% per month. However, if you need immediate access to cash, this may be the best option for your business. Keep in mind that not all owners will have to sign for the merchant cash advance and loan documents are using online or via e-sign, so it’s definitely a small business loan product with convenience in mind. Small business owners can request a wire or the lender may send your company the funds via ACH. The payback term for a merchant cash advance is generally less than nine months and payment remittance is usually 20-21 days/month, no weekends or holidays. If you’re applying for a merchant cash advance, a pro tip is to ask the lender(s) for weekly remittance as opposed to having a daily payment to make. It will help your cash flow as you won’t have your business checking account debited each day, but rather once a week. 

7. Invoice Factoring

Many small business owners struggle with unpaid invoices from clients, which can put a strain on business capital. Invoice factoring is a way to improve your business cash flow by selling your outstanding invoices to a third party, an invoice factoring company, at a discount. This allows you to get paid immediately rather than waiting for the client to pay.

Invoice factoring is also known as invoice financing or accounts receivable financing. It can be a valuable tool for businesses with trouble managing their cash flow. It can help you avoid late fees and interest charges, and it can also help you free up working capital that can be used to invest in other areas of your business.

A considerable advantage of invoice factoring is that the factoring company assumes the risk of non-payment. So, if a client doesn't pay their invoice, you're not out any money.

The downside of invoice factoring is that it can be expensive. The fees charged by the factoring company can vary, but they are typically a percentage of the total invoiced amount.

For example, if you factor in an invoice for $100, you may pay a factoring fee of $15. This means you would receive $85 in cash (the $100 invoice value less the $15 fee).

The fees charged by invoice factoring companies can vary, so comparing rates from different providers is essential before signing up for a service.

Invoice factoring can be a helpful tool for businesses, but it is important to understand the costs and risks involved before signing up for an invoice factoring service. If you are considering invoice factoring, it is important to shop around and compare rates from different providers to find the best factoring company for you.

8. Use a Credit Card to Cover Temporary Cash Flow Shortages

One option that can be particularly helpful in managing cash flow is using a small business credit card. Credit cards can provide a quick and easy way to cover short-term cash shortages.

Additionally, many credit cards offer rewards programs to help businesses save money on future purchases. When used responsibly, credit cards can be a valuable tool for managing business cash flow.

However, it's essential to remember that credit cards can also lead to hard-to-manage debt if they're not used carefully. As such, businesses should consider all of their options before using credit cards to finance their operations.

9. Crowdfunding

Crowdfunding is the process of raising money from a large number of people, typically through an online platform. There are several reasons why crowdfunding can be a good option for business owners who need to raise cash quickly:

  1. Setting up a crowdfunding campaign is relatively easy, and platforms cater to various businesses and causes.
  2. You can reach many potential donors with minimal effort.
  3. If your campaign is successful, you can raise a significant amount of money in a short period of time.

Of course, there are also some downsides to crowdfunding. For one thing, it can be challenging to stand out from the crowd on popular platforms like Kickstarter and Indiegogo. In addition, you'll need to be prepared to offer rewards or perks to donors, which can add to your expenses. And finally, there's always the chance that your campaign will fall flat and you won't raise any money.

10. Peer-to-Peer Loans

For many businesses, peer-to-peer (P2P) loans offer a flexible and affordable financing solution.

P2P loans are distributed by online platforms that match borrowers with investors willing to fund their loans. The platform handles all the paperwork and manages the loan repayments, making it a simple and convenient way to borrow money. Best of all, P2P loans often have lower interest rates than traditional bank loans, making them an ideal choice for businesses looking to save on borrowing costs.

If you're considering a P2P loan for your business, compare offers from multiple lenders to find the best deal. And remember to factor in the total cost of borrowing, including any fees associated with the loan, before making your final decision. By carefully comparing your options, you can ensure that you find your business's best possible financing solution.

Find Creative Ways to Reduce Expenses or Increase Revenue

Here are a few creative ideas that may help you achieve you reduce expenses or increase revenue:

Review your current pricing strategy.

Are you charging enough for your products or services? If not, consider raising your prices. Don't be afraid to price yourself out of the market — you may be surprised at how many people are willing to pay more for a higher-quality product or service.

Evaluate your overhead costs.

Are there any areas where you can cut back on expenses? For example, could you negotiate better terms with your suppliers? Could you downsize your office space? Any savings you can generate will directly impact your bottom line.

Develop a new product or service.

Launching a new offering can be a great way to bring in additional revenue. Be sure to carefully research your target market to ensure demand for your new product or service.

Implement an advertising campaign.

Advertising can be costly, but it can also be very effective in generating new business. If you decide to go this route, track your results so you can measure the return on your investment.

Offer discounts or promotions.

Discounts and promotions can be a great way to attract new customers or boost sales. Be sure to consider your pricing strategy before implementing any discounts, as you don't want to devalue your products or services.

The Bottom Line

There are many different options available to businesses regarding managing cash flow. The best option for your business will depend on a number of factors, including the size of your business, your industry, and your current financial situation. By carefully evaluating your options, you can find the best solution for your business. 

Want more information about business loans? Read How E-Signatures Accelerate Business Loan Approval And Funding.


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