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Let’s say you have most of the necessary elements in place for a successful business. Unfortunately, cash flow woes can undercut your most well-conceived business plans. In a just world, the best ideas would naturally overcome any temporary obstacles. However, in reality – and particularly in business – cold hard cash makes the world go round. It’s what lets you continue your sales operations, pay your employees on time, manage your operating expenses, and turn a profit.
So, what do you do when cash is running low or not coming in as quickly as you like? One option is to take out a business cash flow loan.
Not sure which type of cash flow loan is right for you or where to find the best lender for a cash flow loan? We’ve got you covered. This article discusses the top cash flow loans for small businesses.
Let’s start by taking a look at this quick comparison chart of cash flow lenders. Read on to learn which cash flow solution is right for you.
Best Types Of Loans For Cash Flow
- Installment loans
- Short-term loans
- Lines of credit
- Invoice financing
We’ll go over each type of loan, so you can know exactly what to expect and choose which one fits your business’s needs best.
Installment loans, also called term loans, are loans in which the borrower receives a lump sum of money that is paid back in regular installments. Interest gets charged throughout the loan’s duration. Many times, you can save money by paying the loan back early (so long as your lender doesn’t charge a prepayment penalty).
Installment loans are paid back in regular installments, usually monthly. Each payment goes to paying a portion of the principal (the borrowed amount) and the interest (a fee based on a percentage of your remaining principal). Most installment loans have term lengths between one and 25 years.
Installment loans can be used for multiple business needs, including short-term cash flow and long-term business growth plans. Common uses for installment loans include:
- Working capital (or everyday expenses)
Because of the extended term lengths, installment loans are considered higher risk than other types of loans, and young and unstable businesses might have trouble qualifying. These loans are best for established businesses that want a longer period to repay their debt.
A short-term loan is a lump sum of money granted to a borrower and paid back in frequent, regular installments over a short timeframe. Unlike an installment loan, a short-term loan does not have an interest rate. Instead, this type of loan uses a factor rate: a multiplier used to calculate a fixed fee that gets added to your loan. The fixed fee is only calculated once and is repaid along with the principal.
Short-term loans are paid back in regular fixed installments on a weekly, or even daily, basis. For this reason, short-term loans are ideal for businesses with enough cash flow to afford frequent payments. Most short-term loans have term lengths between three and 18 months (with some up to 24 or 36 months).
Short-term loans are considered low risk and are generally known https://paydayloanstennessee.com/cities/kingsport/ for low borrower requirements, fast funding, and no specific collateral. This type of loan can be ideal for businesses in need of extra cash that have the existing cash flow to make frequent repayments.
Lines Of Credit
Unlike short-term loans and installment loans, lines of credit aren’t lump-sums of money handed to you all at once by a lender. Instead, when you are approved for a line of credit, a lender gives you access to a credit line, which you can draw from at any time, up to the credit limit.
Any draws made on a line of credit are paid in regular installments. Most lines of credit are revolving – as soon as you pay off the amount you used, it gets added back into the total amount available on your credit line. This process means you can keep using the same funds again and again without reapplying for a loan.
Lines of credit are great for short-term, everyday business needs, making them an ideal cash flow solution. Lines of credit can also provide an excellent cash cushion for unexpected expenses and emergencies. Common uses for a line of credit include:
Lines of credit are relatively easy to qualify for because such a wide variety of lenders offer them. They are ideal for nearly any type of business in need of a cash flow solution or looking for peace of mind regarding unexpected expenses. The only downside is that if you use up your credit line all at once, you may not have access to the cash you need until you pay some of it back.
Invoice factoring is a cash flow solution in which you sell your unpaid invoices to an invoice factor in exchange for immediate cash. The tradeoff is that the invoice factor keeps a portion of the cash from the invoice on reserve until your customer pays. Once paid, the factor will return that reserve minus a small fee.
Invoice factoring allows businesses to receive cash faster than they usually would. The money received from invoice factors can be used to meet various business needs:
Invoice factoring is a great solution for businesses that suffer from slow-paying customers and need immediate cash. You do lose a small portion of your invoice sale to the factor’s fees, but this can be more than worth the cost for many businesses that rely heavily on invoices.