Cash flow is a concern for many businesses. Even established businesses struggle with maintaining the flow of cash. Every business should have some reserves to ride out when cash is restricted. Sadly, they cannot always be enough to meet your purpose. As a result, you may think of applying for business loans in New York.
A business loan can be a good way to fix your business needs. You can borrow a larger sum that you are to pay down over a period of time. But these loans cannot be an ideal solution to fix cash flow problems because of the following two reasons:
- When cash is tight, you need an immediate funding. Qualifying for a business loan is time-consuming because it requires a lot of paperwork. It may take a couple of weeks to complete the application process. You may not be able to wait too long especially, if you need to react too fast to grab a profitable opportunity.
- Interest is charged on a daily basis, so they might seem to be an expensive solution. They are never suggested when your cash flow problem is too frequent. Business loans in Texas work best when you want to fund the initial capital of your business or when you need a large sum of money to expand your business.
What alternative should you use, then?
You should consider using the following two alternatives:
Invoice financing
Invoice financing is a quick fix to your cash flow problems. You can contact an invoice financing company that will loan you up to 90% of your invoice value. You can immediately use the money the way you want. However, remember that you will be liable to bear the loss when customers make a default.
Unlike business loans, you will get money instantly, probably the same day. You do not even have to go through a credit check. Invoice financing is quick but solves only temporary problems. If you often run out of cash, you should identify the cause and try to fix it. Improve your cash flow by:
- Cutting down the billing cycle of your invoices.
- Charge penalties to customers who do not pay on time.
- Cut back on your operation overheads to release cash.
- Find out if you are overspending on advertisement and marketing.
Business credit cards
A business credit card can help fix small cash flow problems. You can use them to withdraw funds based on the available limit. They come with high interest rates, so it is recommended using only for small amount of money.
It depends on your credit card company whether they offer you a grace period. Make sure you clear your account in full within that period to avoid paying interest. Otherwise, interest will be charged every day. It can be quite expensive to manage payments.
Improve your profit margins
When both invoice financing and a credit card seem to be expensive, you should find out the ways to improve your profit margins. Determine how much a unit of your product costs you, and then find out how much you should charge your customers.
Raising prices is the best way to fix your cash flow problems, and there is no requirement to pay interest. Make sure you do not overcharge, as it will put off your customers.
Summing up
A business loan cannot always be a good idea to fund your cash flow problems. They are time-consuming and expensive. You should use invoice financing and business credit cards in lieu of business loans. If nothing works, raise prices as a last resort. For more such interesting and informative articles, visit here.
