Even contractors who have steady businesses with plenty of customers might run into cash flow problems from time to time. It’s an issue that happens to some of the most successful entrepreneurs in every field. What sets apart those who overcome these problems from those who don’t is how they handle the issue.
If your business doesn't have a lot of assets you can borrow against, cash flow loans are one way to get around a cash flow problem. Note that while they can be helpful to your business, they come with their own set of risks and drawbacks. Weighing the pros and cons of these loans is important before you make a decision to take one.
Think about whether or not you really need a cash flow loan
Taking any type of loan is always a risk for both parties. It’s a calculated one, and risks are always necessary to succeed in business, but if something goes wrong and you are forced to default on payment, you could face some serious financial problems – professionally and personally. Make sure that the opportunity you are taking out a loan for is worth risking your credit and reputation.
Take loans for expenses beyond the day-to-day
If you need to take out a loan to cover your organization’s day-to-day expenses, you’ve probably got more serious problems to address. If this is the case, evaluate your business and see what is causing the deficit between revenue and overhead. Ideally, you want to use cash flow loans for one-off needs, such as scaling up your staff for a large job, investing in new trucks to service more locations, or ramping up your advertising and marketing to grow the business.
Do your research
You can go to a standard bank for a loan, or you can look for a company that has a specific focus on loans for small business. Each type of lender will have its own set of pros and cons and interest rates. The best option for you will depend on your local area and how you prefer dealing with lenders. Whichever provider you decide to go with, make sure to do your research before settling on one – don’t just accept a loan from the first lender that offers you the money you need.
Get your books in order
To receive a cash flow loan from most lenders, you’ll need to show revenue logs, assets owned, possibly even personal finances depending on the size of the loan. You’ll also require some collateral to take out a loan, although in many cases, your future cash flow may be sufficient. Credit scores also play a huge factor in your ability to get a cash flow loan, the same way they affect loans for things like cars and houses. If necessary, take steps to improving your business credit before you take out a cash flow loan, which will help you put your best foot forward when speaking with prospective lenders.
Cash flow is an important part of any business. If you decide a cash flow loan is necessary, make sure to choose the right lender and prepare your records for examination. Getting a loan can be stressful, but if you are able to secure one and pay it back timely, it could provide you with the ability to take your business to the next level.
