Even if you run an extremely business, one of the biggest issues in life is when you’re facing cash flow problems. Cash flow problems can undercut even the most well thought out business plan. In just one month, your business can fall apart due to cash flow issues. In an ideal world, this never happens – your clients pay you on time, and life moves on. But that’s rarely the case.
In this world, cold hard cash is needed. It’s how you continue your operation, pay employees, and manage expenses.
So what do you do when cash is running low?
One option is taking out a business cash flow loan.
Hopefully in this article, you’ll learn about business cash flow loans, and which business cash flow loan is right for you.
Below is a list of the top cash flow lenders.
Best Types of Business Cash Flow Loans
There are many types of loans which can be amazing options for increasing the cash flow of your business:
- installment loans
- short term loans
- lines of credit
- invoice factoring
There are also called term loans. These are loans in which the borrowers gets a lump sum of money, which is paid in installments. Interested is charged throughout the loans duration. Often, you can save money by paying the loan back early.
Installment loans are paid back usually on a monthly basis. Each payment goes to paying the principal, and the interest. Most installment loans are paid in regular monthly installments. Each Usually installment loans have lengths between 1 and 25 years.
Installment loans can be used for many business needs. For example, you can use business installment loans for short term cash flow needs, and long term business growth plans. Common uses for business installment loans can be:
- Working Capital
- Buying inventory
- Expanding the business
- Buying a business
- Debt financing
Because of the long term length of the installment loan, it’s considered a higher risk than other types of loans. Many younger, and less established businesses, have trouble qualifying for such a business loan. These are usually reserved for businesses that need a longer period of time to repay their debt.
Short Term Business Loans
This is usually a lump sum of money which is given to the borrower and paid back in frequent, payments over a short time frame. Unlike installment loans, these shorter term loans don’t have an interest rate. Instead, they used a factor rate, which is a multiplier used to calculate a fixed fee which is added to the cost of your business loan. The fixed fee is only calculated once, and is repaid alongside the principal.
Short term business loans are usually paid back in fixed installments on a weekly, or daily, basis. Short term loans are great for businesses who have cash flow and can afford frequent daily payments. Most short term loans have lengths between 3-18 months. These are great for many types of business needs, such as working capital, buying inventory, buying equipment, hiring new employees, and more. These are considered low risk, and have less requirements, and are funded fast. This type of business loan is ideal if you need extra cash, and have the cash flow to make frequent payments.
Lines of Credit
Unlike short term loans, lines of credit are not lump sums of money. Instead, when you get approved for a line of credit, a lender gives you a credit line which you can draw on up to a limit. Any draws are paid in regular installments. Most lines are revolving. As soon as you pay off the amount used, it gets recycled back to the amount available on your line. This means you can keep using the same amount of funds over and over, without reapplying for a new loan.
This is a solution where you sell unpaid invoices to an invoice factoring company in exchange for IMMEDIATE cash. The tradeoff is that the invoice factoring company keeps a portion of the cash on reserve, until the customer pays the invoice. Once paid, the factor returns that reserve, minus a small transaction fee.
The type of contract and invoice eligible for invoice factoring varies based on the lender you’re working with. Invoice factoring allows businesses to get cash faster than they normally would. The money received from invoice factoring can be used to meet all of your various business needs, such as: working capital, payroll, purchasing inventory, and more.
Invoice factoring is a fantasatic solution for businesses that are suffering, and have slow paying customers, and need immediate cash. Unfortunately, with invoice factoring, you lose a small part of your invoice to the factoring companies fees. This can often be worth it.