Business loans offer a convenient form of financing for startups and established businesses alike. Research shows that over one-third of all U.S. small businesses apply for a business loan in any given year. Whether you operate a small, medium or large-sized business, you can finance it with a loan. But if you’re going to borrow money from a lender, you’ll need to manage repayments to minimize the impact it has on your business’s cash flow.
The Impact of Business Loans on Cash Flow: Tips for Managing Repayments
Business loans can restrict your business’s cash flow. Cash flow represents the money entering your business — through product or service sales — as well as the money leaving your business. You’ll have to spend money when repaying a business loan. For better cash flow, though, you can choose a business loan with a longer term.
The term of a business loan represents the length of time that you have to pay it off. Some business loans have a term of just one year, whereas others have a term of five to 10 years — sometimes even longer. A longer term will typically result in smaller repayments, thus preserving your business’s cash flow.
Use Cash Flow Forecasting
Another tip to minimize the impact of a business loan on your business’s cash flow is to use forecasting. Cash flow forecasting is exactly what it sounds like: a forecasting strategy that’s designed to predict your business’s incoming and outgoing money. With cash flow forecasting, you’ll be able to better plan your business’s money. You can prioritize key expenses like loan repayments while placing less-important expenses on the back burner.
Familiarize Yourself With the Repayment Schedule
Don’t forget to read the fine print when applying for a business loan. You should familiarize yourself with the repayment schedule so that you know exactly what to expect.
All business loans have a repayment schedule. The lender typically requires borrowers to pay a minimum amount each month. When applying for a business loan, pay attention to the amount of the repayments, the frequency of the repayments and other requirements. If it’s not aligned with your business’s best interest, you should look for financing elsewhere.
Consider Equity Financing
Rather than a business loan, you may want to use equity financing. Equity financing consists of private equity and venture capital. It involves selling ownership or “equity” to an investor. You won’t take on any new debt with equity financing. Therefore, equity financing won’t harm your business’s cash flow. It can actually improve your business’s cash flow by providing your business with new capital that you don’t have to pay back.
This article was brought to you by Intrepid Private Capital Group, a Global Financial Services Company. For more information on startup and business funding, or to complete a funding application, please visit our website.