How to Handle a Small Business Cash Flow Crisis

A cash flow crisis can happen to any small business at any time. There are several reasons why you might have found yourself in a situation where you’ve got more money going out than you have coming in. Perhaps you’ve had to fund an unexpected business expense this month, a client is dragging their feet with paying an invoice that was expected last week, or maybe one of your biggest customers has just pulled out. The good news is that most of the time, cash flow crises can be turned around. There are several options available to you that you can use to make sure that you have the funds necessary to cover your business expenses now and in the future. Here are some ideas to consider.

 

Small Business Loan

Most cash flow crises aren’t serious enough to warrant going to the bank for a large loan. However, one option that might be useful to you is a small business loan. These loans are often provided by smaller lenders who focus on lending smaller amounts of cash, designed for businesses like yours. They are also easier to get if your business is fairly new since most banks and bigger lenders will expect to see extensive financial records from your company. Even if your business is in the very early stages and does not have much financial history to show, some lenders will still offer a business loan that you can use to balance your cash flow.

 

Business Credit Card

Keeping a business credit card on hand for emergencies is good practice. And, you can use your credit card to make essential purchases each month before repaying it in full, which will help to build your business credit rating and make it easier for you to obtain loans and other forms of business credit in the future. Business credit cards are usually much easier to get than a business loan when your business is in the early stages and can provide you with an emergency fund to fall back on if you run into a cash flow crisis.

 

Invoice Factoring

If your cash flow issues are due to clients not paying their invoices on time, you may benefit from invoice factoring. Invoice factoring companies work by providing you with the amount of money that you were expecting to be paid by your client, and then the client will pay their invoice to the factoring company instead. As a result, you do not need to be short if your client is ignoring the reminders to pay that you have sent them. Many invoice factoring companies also have debt management services that can step in to make sure your client pays what they owe.

 

Borrow From Friends and Family

Finally, if you’re struggling to get any official funds for your business by lending, you might want to consider asking your friends and family to help you out. If you have supportive friends and relatives who want your business to do well, they may be happy to offer you a loan to cover the amount that you need to balance your cash flow for the month. However, it’s always important to be careful when borrowing from friends and relatives and ensure that you can keep to the agreed terms of the loan. Borrowing informally from people in your life can be cheaper as there’s no interest, but it can damage your personal relationships if you are unable to make repayments as agreed. Be honest and upfront about what you can afford to enable you to come to an agreement that suits everyone.

Cash flow problems can happen in any business, but the good news is that there are plenty of options to consider if you’re going through this right now.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.