Every business experiences cash flow problems every now and again, but when it happens there are several options to get yourself out of the rut. Let’s take a look at three popular ways that many businesses use.
Take Out A Loan
There is a simple difference between secured and unsecured loans. Secured loans are seen by lenders as lower risk, because they are taken out against your assets. These could be from your business or against you personally. Banks will look at the risks involved and make their decision on a number of factors, including your company credit score and how well you can prove your business is protected.
Unsecured loans usually have higher interest because they are far riskier for the lender to make and you are simply promising to pay them back. So which one is better for your situation?
It all depends on your credit score. It can be difficult to guess whether a lender will reject your loan application, but you can give yourself a better idea by checking your company credit report. Head over to Experian, Equifax, and Transunion to check yours.
If your credit score is hovering around the mid-range, it might be worth trying to bump it up a little before applying for the loan. There’s a lot of good advice here on how to improve your business credit score.
It’s worth going for the safer, unsecured loan first, although you may be rejected. Consider a secured loan only if you can guarantee to yourself that you will be able to pay it off over the whole term.
If your business is struggling with a poor credit score, then a good alternative to think about is vendor finance.
Vendor financing is a form of lending that you can use to increase your cash flow. In basic terms it is a loan offered to a borrower that is used to buy property or equipment sold by the vendor.
Let’s say you sell expensive equipment. If you have a high ticket price then customers may be slower to buy, and the sales process is drawn out. But that can be sped up with vendor financing.
Business specialist Brent Finlay from http://www.vendorfinancingprograms.ca/ says you can benefit in many ways. Not only will you close a deal faster, but you will make more sales. And that is the perfect way to increase your cash flow.
This method of funding isn’t without risk. It involves thorough credit checks on your behalf, and it would be unwise to proceed without expert advice.
Business Credit Card
Getting a business credit card can help you get through those periods, whether you need to pay suppliers or by more raw materials.
Business credit cards often have limits far higher than you might expect as a consumer. This means that it will be far easier to make major business purchases that you simply could not make using your personal credit card or cash.
It’s a very good alternative to a loan, and gives you a lot of flexibility. Also, your business card can help your own personal credit. Almost a third of your credit score is based on how much you have used of your available spend.
For example: if your limit is $30,000 and you have spent $3000 (10%), you won’t look as risky as someone spending $3000 from a $6000 limit (50%).
Credit expert Odysseas Papadimitriou has some great advice on business credit cards over at Hiscox.com