Almost every small business hits a cash flow crisis from time to time. It’s simply the nature of the game. If you have bills to pay and little cash on hand, it’s obvious that you need to borrow.
But what steps should you take to ensure you get the loan that’s right for you?
Work out what you need
This step is crucial, but in their scramble to avert a cash flow catastrophe all too many companies skip it. The results can be disastrous. Borrow too little and you won’t solve the problem. Borrow too much and you’ll find yourself paying unnecessary interest.
By the same token, if you ask for too much then financial institutions may refuse to lend, meaning you get nothing.
Know who to talk to for a short term loan
Many companies facing a cash flow crisis run straight to their bank. That superficially makes sense. Who else would understand their financial position and track record better?
However, since the financial crash of 2008 banks have significantly tightened their lending criteria, and many make decisions centrally, so there’s a good chance the computer will say no.
It therefore makes sense to talk to alternative lenders like Cashsolv, who apply quite different criteria when considering applications and who will be more concerned with your prospects than your past. What’s more, alternative lenders can offer more innovative solutions, such as invoice factoring and discounting, which allow you to borrow most of the value of your invoices as soon as you issue them, thus taming a troublesome cash flow forever.
The difference between them? With factoring, we would assign experienced credit control professionals to secure early repayment, thus minimising the interest you pay, whilst with invoice discounting you retain control of your own debtor ledger.
Understand the approval process
Even if your bank says yes, it probably won’t be for a few weeks. It could take you days just to compile all the paperwork they require (three years’ profit and loss statements, three years’ tax returns, piles of bank statements, articles of incorporation, maybe even a business plan and directors’ CVs).
In contrast, if you’re really up against it, we can have emergency funds inside your account in under 24 hours, though of course applications for structured short term business loans will take a little longer.
Understand the terms and conditions
One important consideration is whether the loan is secured or unsecured. The former may be easier to obtain, and cheaper too, but it’s less risky for the bank precisely because it’s riskier for you.
At the same time, it’s vital to understand the repayment terms. Is there any flexibility if you struggle to make a payment? Equally, if things go better than expected, can you repay early without a huge financial penalty.
Cashsolv are the experts in small business finance, and we can offer everything from emergency loans to invoice factoring or discounting.