Smart Ways to Increase Cash Flow with Small Business Financing

In this article we cover:

• The importance of cash flow to a small business
• How small businesses can increase their cash flow with financing
• How to find small business financing

Cash flow is the money that comes in and goes out of your business. Typically small business owners are laser-focused on cash flow because it is what allows them to operate the business. Having smooth, steady cash flow allows small business operators to meet their financial obligations, plan for growth and expansion, and weather the storms that will come. However, not all small businesses have the luxury of simply flipping the cash-flow switch. There are many reasons why small businesses struggle with cash flow. In this article, we offer several tactics on how to use small business financing to create smooth business cash flow.

The importance of cash flow to a small business

All small business operators need to maintain a clear picture of their cash flow. Cash flow allows a small business owner to operate the business by meeting its financial obligations. For example, employee salaries, rent, operating expenses, taxes, accounts payable, insurance, utilities, marketing, and costs associated with fulfilling orders are some expenses needed to operate a business.

Even when revenue comes in the door from a sale, cash flow is needed to fulfill the order. Even a small business with excellent profit margins on that revenue still needs cash flow to fulfill the order. Depending on the business, the cash received from a sale might not hit a business’s bank account for several weeks up to a month (or longer); the accounts receivable process is not always fast. While revenue and profit are important to track and improve upon, understanding daily cash flow is still one of the most important things to keep a small business running.

Key cash flow metrics should be maintained and reviewed on a small business’s cash flow statement. The financial data on this document is critical to understanding how cash comes in and leaves a business. Reviewing the cash flow statement, maintaining quality data with bookkeeping efforts, reviewing information from accounting software, etc, are all business operations best practices that will lead to positive cash flow; and avoid negative cash flow. This data will also help your business create a cash flow forecast, which will come in handy if you have to write a business plan for a loan application.

In addition to operating the small business daily, strong cash flow can be beneficial in these areas:

1. Anticipated growth and expansion: growth and expansion efforts can be supported with strong cash flow. If a small business is in a position to expand, it likely knows the steps needed to do so and the amount of cash flow required. Having a clear picture of cash flow will let a small business know when the time to expand is right.
2. Unforeseen opportunity: not all growth and expansion efforts are carefully planned and timed. Unforeseen opportunities can arise that require you move quickly to take advantage of them. For example, you receive information that a competitor is struggling and might be open to an acquisition, or desirable real estate comes on the market, and it will go quickly so you need to move fast, etc. Having strong cash flow allows you to be prepared for the unknown opportunities around the corner.
3. Unforeseen challenge: Just like there are opportunities around the corner, there are also challenges. Many times unforeseen, small business owners need to be prepared for any challenge that presents itself. Cash flow can make a small business more resilient to challenges like recessions, pandemics, inflation, market shocks, or other force majeure events.

Cash flow is very important to operate a healthy small business. However, establishing, maintaining, and improving cash flow is easier said than done as many small businesses struggle with cash flow. Luckily for small business owners, there are tactics to improve and smooth out cash flow by using financing. 

How small businesses can increase their cash flow with financing

In a perfect world for small business owners, cash flow is not a problem, revenues go up, profitability goes up, and your business goals are achieved just like that. The reality is operating a small business can be very challenging and many have cash flow problems. In the list below, we present a range of financing options small businesses can use to increase their cash flow. It is ultimately up to the business operator to determine which tactic is a good fit for their specific situation:

• SBA loans: From $500 to $5.5 million to fund or expand a business, there are several types of SBA loan programs designed specifically for small businesses including microloans, 7(a) loans, and 504 loans. SBA loans for business can support your cash flow goals. Let’s quickly look at the most popular types of SBA loans:
  • The SBA microloan program provides loans up to $50,000 to help small businesses and certain not-for-profit childcare centers start up and expand. The average microloan is about $13,000.
  • The SBA 7(a) loan program is the SBA’s most common loan program which includes financial help for small businesses with special requirements. This is the best option when commercial real estate is part of a business purchase, but it can also be used for short-term and long-term working capital, refinance current business debt, and purchase furniture, fixtures, and supplies.
  • The SBA 504 Loan Program provides long-term, fixed-rate financing for major fixed assets that promote business growth and job creation.

  For additional information on SBA loans please visit our article titled: What are the Steps to Get Approved for an SBA Loan?

• Business credit card: A business credit card can improve the cash flow situation of a small business. Essentially, a business credit card gives a business operator more control of their cash flow. Consider the following:
  • Everyday business expenses that are smaller in value. For example, taking the team out for coffee, gas in the company car, printer ink, office supplies, etc. Using a credit card, vs cash or a debit card, allows you to manage when you pay back an expense. It might be preferable to delay a purchase to next month to maintain strong cash flow this month.
  • Using your credit card and paying it off in full every month before the due date – don’t just make the minimum monthly payment – will help you raise the credit profile for your business which can lead to higher limits for a business credit card, a business line of credit, and the loans we discuss in this article.
  • Obtaining quick, collateral-free financing up to your limit for general business needs. Similar to the first bullet point, this allows you to better manage your cash flow on slightly larger expenses.
  • Set operational expenses to “set it and forget it”. For example, your small business credit card can be automatically charged to cover your internet, cell phone, and other bills. Also, you can usually set up your credit card to automatically make payments from your business checking account at the end of the month to further automate your expenses ensuring no late payments. Knowing exactly what expenses will be charged and when they will be charged allows you to understand your cash flow and plan accordingly.
  • If a purchase you were planning on making anyways also qualifies for a credit card introductory offer. This can be a way to generate some one-time cash.
  • If you have a bad credit score, you can use a business credit card to rehab it. Making small purchases every month and paying off your balance in full every time (or even making early payments) is one tactic to improve your credit, which will allow you to qualify for small business financing.
• Line of Credit: A business line of credit is similar to a credit card. Lenders will establish a credit limit for the maximum amount of money they will lend you and you can tap as much as you need up to your limit. Like a credit card, you pay interest only on the amount you borrow. Consider a line of credit to increase your cash flow using the following tactics:
  • Using a line of credit helps for covering purchases you can’t put on a credit card or that might exceed your spending limit on a credit card. For example, an unforeseen opportunity that will allow you to grow, expand, and improve your cash flow presents itself.
  • If you need longer than a month to pay back the cash. A business credit card only gives you 30 days (certain providers might offer longer payback terms), and then your outstanding balance will be charged a very high-interest rate with no grace period. You can essentially use a business line of credit as an ad-hoc short-term loan.
  • Avoid high cash-advance fees of a credit card.
  • Generally lower interest rates.
  • More favorable payment terms
• Working capital: working capital loans can quickly get your business the support it needs. With a working capital loan, a small business can improve cash flow by using the proceeds to grow the business, cover one-time business expenses, hire staff, buy new equipment, pay down operational costs, purchase inventory, expand your workplace, and more. Essentially the loan proceeds can be used to manage, control, and increase your cash flow.
• Term Loan: term loans give established businesses the financing needed to grow. Some popular reasons small businesses seek term loans are growth and expansion, access to full cash amount upfront, use for a broad range of business needs, free up operational cash flow, and benefit from tax-deductible interest.
• ERTC Loans: Employee Retention Tax Credit loans are interest-only. An ERTC loan gives business owners waiting on an IRS credit payment access to more of their funds up front without the wait. A small business can use the funds for any purpose it needs. For example, growth and expansion, access to full cash amount upfront, use for a broad range of business needs, free up operational cash flow, and benefit from tax-deductible interest.
• CRE loans: Asset-based CRE loans allow a small business to leverage commercial real estate equity. CRE loans make it easy for small businesses to reinvest capital in their next business opportunity. For example, some popular reasons to seek CRE loans are to grow the business, acquisition of a new business, refinance an existing project (cash out), fund a renovation project, and refinance existing business loans.

The available range of small business financing opportunities can put a small business in better control and increase positive cash flow. There are so many ways to use small business financing to increase cash flow. Whether it’s a small business credit card to manage when you pay for a cup of coffee or a large, multi-million-dollar loan to grow and expand, small business financing can dramatically increase cash flow.

When you are considering the above list of small business financing options to increase cash flow, also think about how you might use multiple options simultaneously. For example, opening a business line of credit doesn’t mean you have to use it immediately, but it’s good to have and can complement other financing.

How to find small business financing

Factoring in all of these small business financing options can be a challenge but they can lead to better cash flow management and an increase in cash flow. There are many lender options to get a business loan, a credit card, and a line of credit for your small business. Biz2Credit is a great place to start. Our helpful staff provides small business owners with exceptional customer service and will work hard to understand the needs of your small business, the intended uses for your loan, and the best terms that can be offered. Get in touch today to find out the small business loan financing that can help you.