Cash flow problems, these are one of the most common issues that small businesses suffer from. Whether it is a short-term problem or a long-term issue, a lack of cash flow can have some serious consequences for a business. It can affect a company’s ability to provide its products and services to the customer, it can mean a lack of skilled employees if you don’t have enough money to hire on more staff, it can lead to missed payments with vendors and suppliers, it can prevent you from being able to invest and expand the business further, and so much more.
It’s at this point that many companies start to consider getting a small business loan. But before you go ahead and rush into anything, it’s wise to take a little time and learn what you can about small business loans and when they make the most sense.
What is a Small Business Loan?
Small business loans tend to be a traditional way to go about solving cash flow problems. There are some that are meant for new businesses or startups, and then there are business loans meant for already-established companies. You first need to qualify for the loan – you will likely need collateral – and then a payment plan is set-up wherein you will pay back the money borrowed over a set amount of time.
Now obviously this can provide a company with the cash it needs to keep things operating smoothly, allowing for investment in new machinery, equipment and a larger space, and more experienced staff.
However, it’s also important to understand that there will be a monthly payment that needs to be made on that loan, so the company needs to be in a strong enough position that it won’t default on the payment. As well, if there isn’t a larger plan in place on how to start growing profits, this loan is only going to act as a bandage to a bigger problem.
There May be Other Solutions that Make More Sense
While a small business loan may seem like the best solution, in reality there are other means of financing that could be a better route to take. Let’s take for example the popular merchant cash advances that so many businesses are taking advantage of. The way this style of funding works is that repayment is made with a small percentage of future credit card sales. This continues until the full amount is paid off. It’s not classified as a traditional business loan since it works in such a different way.
The companies that would benefit the most from this style of funding are those that make a lot of credit card sales. Typically this type of funding ranges from $10,000-$500,000 and there isn’t a set term.
Keep Your Funding Options Open
In order for your business to be successful, it’s not possible to operate with little to no cash flow for long periods at a time. Ignoring it certainly won’t fix the problem, nor will it make things easier. As a business owner, it’s up to you to keep your funding options open and explore all avenues.