Cash flow is a fundamental part of any business. It allows you to pay bills, make payroll for employees, maintain inventory levels, and invest in new equipment or marketing materials—all of which are critical for a small business’s success.
Cash flow is an important factor in small business lending too; however, this topic is something that many business owners don’t fully understand. This article will help to shed light on the topic of cash flow for small businesses, as well as why it matters when applying for loans.
What is Cash Flow in Business?
Cash flow is the difference between cash inflow and cash outflow. It plays an extremely important role in the growth of a business, as it shows how much money comes into a company through sales or investments versus how much goes out as operating expenses and debt.
It also helps you determine if your business can cover its expenses and stay afloat. A positive cash flow indicates that more is coming in than going out, which means there’s room for expansion and sustainable business growth. If your cash flow is negative, however, you’re likely to have trouble paying for everyday expenses, such as inventory or staff wages.
How Cash Flow Helps with Small Business Funding
Cash flow is also important for small business funding, as lenders look at cash flow statements when deciding whether or not to approve loans for their customers.
Additionally, having a thorough understanding of your cash flow allows you to determine how much extra working capital you’ll need when applying for a loan.
Finally, it’s important that you get the right type of loan for your needs. This means understanding how much cash flow is required by your business each month in order to pay back the lender on time.
Many small business loan providers will have requirements in place to ensure a business has enough cash flow on-hand to meet these obligations. Zinch, for example, offers small business finance in the form of working capital loans and merchant cash advances (MCAs) to businesses with at least $10,000 in monthly sales. This minimizes the risk of insolvency to ensure applicants can get the most out of their boost in working capital.
The Importance of Paying Back Lenders on Time
Paying back your small business loan on time is important for maintaining a good credit score, which can be used to secure additional funding from other sources. If you don’t pay back the small business lender, they can take legal action against you and may even seize property in order to recover their losses.
Having a negative mark on your credit report when applying for financing could also prevent some lenders from working with you at all, thus making it difficult for you to secure additional finance down the line.
How to Balance Cash Flow with Payouts
As a small business owner, it’s important to pay attention to balancing your cash flow with expenses. This means making sure you have enough money in the bank so that you can pay your bills, meet payroll, and grow the business. It also ensures any unexpected expenses or downturns in revenue won’t put you at risk of going bankrupt.
A good way to track your cash flow is by using a budget. A budget will help you make sure that you don’t overspend and that you can meet all of your obligations. When setting up a budget, it’s important that you consider all of the costs associated with running your business so you know how much revenue will be needed in order for it to run smoothly.
What Does Solvency Look Like for a Small Business?
Solvency refers to the ability to pay debts when they are due. There are many factors at play here besides simply having money on hand, however. Creditworthiness, liquidity, risk tolerance, and personal and business ethics are also considered when determining if a person or business is solvent enough for others’ trust and financial support.
While large companies can often afford to operate in the red for short periods of time while they work through their financial issues, small businesses simply do not have that luxury. If an entrepreneur cannot demonstrate solvency, he or she will not be able to secure funding.
Boost Your Cash Flow with a Small Business Loan
A small business loan from an online lender like Zinch can boost your working capital and allow you to put your cash flow to better use—whether through expanding your operations, investing in new equipment, or anything else that will allow your small business to thrive.
Contact us at (714) 500-6622 to learn more about your options. You could qualify for up to $250,000 in just 24 hours.
