Limited cash flow is an issue for all businesses at one time or another. This is especially true for new and small businesses. There are a few options to deal with the situation. Some are a temporary fix while others are ongoing.
A Traditional Loan
Banks have a lengthy application process. They also require many documents and will consider the credit history of the business as a factor. Approval is difficult because banks are cautious regarding new or small businesses. Many will not want to assume the risks if a business fails.
It may be easier to get a loan from the Small Business Administration if the business qualifies. The important thing to remember is that any type of loan will have an interest rate. The business may have the cash needed to meet payroll, but will then have to be concerned about making loan payments.
Financing Through Factoring
There are many forms of factoring offered by factoring companies. Cash is provided with no upfront costs, no credit check on the business, and no lengthy application process. Approval rates are high and decisions are made within a day or two. The most common form of factoring is Account receivables financing.
The company purchases the accounts receivable from the business for a high percentage of the face value. The payout can be as high as ninety-six percent. The rate depends on the credit history of the customers, not the business. The company collects the fee when customers pay the account in full. This arrangement can be temporary or revolving to act as a sustainable line of credit.
Owners will want to compare factoring companies to get the best deal. Fees, percentages, and conditions vary greatly among companies. Take the time to review all relevant information and ask any questions to fully understand the nature of the transaction.
That second location in the next town may be draining more resources than originally anticipated. If cash flow issues have increased, it may be time to re-evaluate that plan of action. It will be less expensive to downsize all that overhead. Extending the service area from one location may be a more successful way of expanding the business.