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By some estimates, as many as 40% of all small businesses have faced challenges with managing their cash flow. When money is tight, many business owners look for credit and financing to cover the gaps. We take a look at some top cash flow loans and lines of credit on the market as well as solutions to common cash flow issues.
Business Term Loans
Term loans can be a great source of financing to cover cash flow gaps. If you need funds rather quickly or can’t qualify for traditional financing, you should consider an online lender as most can get you money within a week and have fewer eligibility requirements than a bank. However, we still recommend approaching your bank about a loan or line of credit as they may be able to work with you on a tight schedule. In fact, some banks, like Wells Fargo and Bank of America, now offer online business loans and lines of credit with quick turnaround times.
|Wells Fargo||Bank of America||OnDeck (Read Review)||Funding Circle (Read Review)||LendingClub (Read Review)||Credibly (Read Review)|
|Min. Criteria to Qualify|
|Funds in as Fast as||Next business day||5 business days||As fast as one business day day(s)||as few as 5 days day(s)||7+ business days day(s)||as soon as the same day day(s)|
|Apply Now||Apply at Wells Fargo||Apply at Bank of America||Apply at OnDeck||Apply at Funding Circle||Apply at Lending Club||Apply at Credibly|
Lines of Credit
If you have ongoing cash needs or are heading into busy season, a line of credit is another useful tool in managing your cash flow. Credit lines are available from banks, including SBA lines of credit, and online lenders, such as OnDeck and LendingClub. Some payment processors even offer lines of credit that use a cut of your business’s daily credit card transactions as repayment. A major advantage to a line of credit is that it’s easy to get an unsecured line, so you won’t need to jump through hoops to put up collateral.
|Wells Fargo||Bank of America||OnDeck (Read Review)||Kabbage (Read Review)||StreetShares (Read Review)|
|Min. Criteria to Qualify|
|Funds in as Fast as||10 business days||10 business days||As fast as one business day day(s)||As fast as same day day(s)||As fast as same day day(s)|
|Apply Now||Apply at Wells Fargo||Apply at Bank of America||Apply at OnDeck||Apply at Kabbage||Apply at StreetShares|
One thing to be cautious of is fees. Many credit lines might have annual fees (in some cases, these fees can be waived) and fees for certain types of transactions, such as cash advances from ATMs. You’ll also want to consider how often you need to repay on the credit line, as some online lenders will require repayment more frequently than once a month.
Financing Unpaid Invoices
If your cash flow gaps are caused by waiting for customers to pay invoices, you may want to consider invoice factoring as an option. Invoice factoring allows you to get an advance on your invoice, typically up to 80% to 90%, and receive the remaining 10% to 20% (less fees from the factoring company) when your customer pays. In most cases, invoice factoring companies will charge a weekly fee between 0.5% to 1.0% of the invoice amount.
|BlueVine (Read Review)||Fundbox (Read Review)|
|Min. Criteria to Qualify|
|Apply Now||Apply at BlueVine||Apply at Fundbox|
How to Deal With Cash Flow Issues
While getting credit can be a great temporary stopgap, you should work to identify the root cause of your cash flow problem and fix it. Here are some solutions to common cash flow issues:
Incentivize customers to pay earlier. Most businesses offer 30 to 60 day payment terms to their clients (which is standard), but many businesses cannot afford to wait that long to get paid. One solution to this issue is to offer a small discount, usually 2% to 3% of the invoice, for customers who pay early. Another practical solution is letting your customers pay online or enroll in automatic payment. You’ll need to negotiate these discounts and terms directly with each client.
Set up a process for dealing with bad debts. Bad debt is any amount owed by your customer that hasn’t been recovered by you. To combat this problem, you should have a process in place to deal with past due receivables, which means having late payment penalties or a collections policy and sending follow-ups to customers who are past due. You should also consider conducting a credit check on new customers before extending them credit. If a customer has poor credit, you could require an initial deposit upfront, which will offset the chances that you’ll go entirely unpaid for your work.
Get your accounting in order. If you aren’t on top of your books, it will be nearly impossible to identify and fix any cash flow issues. Online or desktop accounting software, like Quickbooks or Xero, can help you create current cash flow statements and projections to help you get a handle on your current and future income and expenses. Good accounting will also keep you on top of your unpaid invoices and bad debts so you can collect the money you’re owed.
Reduce expenses where possible. With your accounting in order, you should investigate where you can cut unnecessary expenses. You could reduce paper usage to cut down on printing costs or switch to a lower cost vendor for services such as insurance or credit card processing. Just be careful not to cut costs where they matter as this could be harmful to your business in the long run.
Get credit before you need it. For businesses with regular busy seasons, consider getting a loan or line of credit before you need to start preparing for the season. Many times, your cash flow may be the tightest right before busy season when you need to purchase a lot of inventory, but aren’t yet making the sales to cover the costs. Getting financing before you need to ramp up for busy season can give you a much needed cash injection to fix this problem.
Fix your gross margins. If your margins aren’t high enough on your products and services, you’ll suffer ongoing cash flow problems until you can increase them. You’ll need to audit all of your products to determine the overall cost of producing them. Once you’ve identified the true cost, look into raising your prices to increase your margins. If you can’t raise prices and remain competitive, reevaluate whether the products are worth selling.