Cash flow challenges are a common hurdle for businesses of all sizes. New or small companies, in particular, must carefully balance expenses and income to maintain operations while focusing on expansion and preparing for the unexpected. In addition to conventional options, such as loans secured through a bank, alternative lending may provide the capital injection your business needs to cover temporary cash flow problems. Alternative financing is often ideal for companies that may not be eligible for traditional funding for various reasons. We’ll outline some of the typical cash crunch scenarios small businesses may face and the alternative lending solutions that can help support financial stability and future growth.
Unpredictable Income Due to Late Payments
Does your business run on a 30-, 45-, or 60-day operating cycle? Providing products and services, invoicing, and awaiting customer payments can disrupt your cash flow, making it difficult to cover operating expenses or pursue strategic efforts. Factoring, which sells your outstanding invoices at a discount for immediate cash, may help manage payment delays with a steady stream of capital.
Exponential growth is the hope of any business owner. However, expanding too quickly may also require hiring more personnel, securing new equipment, investing in new products, or opening additional locations. Traditional loans may take longer to approve and fund, which is discouraging when time is of the essence. Alternative lending options such as factoring and asset-based lending may provide access to capital without lengthy processes so you can expand without delay.
Seasonal Peaks and Valleys
Managing your cash flow is a common challenge if you have a seasonal business and irregular revenue patterns. Asset-based lending could be a flexible option that aligns with your business’s natural rhythms. It allows you to leverage your assets, such as inventory or equipment, to secure the funding needed during your leaner months—so you can direct it toward business objectives while you await peak sales.
Limited Credit Options
Securing a traditional loan can be difficult if you have an insufficient or less-than-pristine credit history. Even if you have experience and valuable connections, traditional lenders often look at specific financial criteria that could deny you the capital you need. Alternative lenders look beyond your credit, evaluating the potential you hold rather than just your financial track record. For example, an alternative lender may look at your growth potential, revenue patterns, goals, and current assets, which could provide collateral for funding, making this a more accessible option on your path to traditional lending.
Like in your personal life, having a safety net is crucial for emergencies or unexpected events at your business. Expensive repairs or a sudden surge in demand can cause a similar cash constraint. Factoring provides a reliable source of funds when you need it fast. Once approved, you can quickly convert your accounts receivable into cash to address urgent expenses and continue operating your business.
The More You Know
Tackling cash flow challenges is shared among every business owner. Staying aware of the available traditional and non-traditional lending options equips your business with practical tools to adapt and overcome the financial hurdles that may come your way. If you need help finding new opportunities or determining the best solution, please contact our team; we’re here to help.