Cash flow is nothing but the movement of money in and out of business. Positive cash flow is significant for the proper functioning of a company. Without a positive cash flow, it is hard to run a business for more than a restricted period. Every business goes through hard times. There may be gaps in cash flows because of delays in payments by clients. During such times, business loans can serve as an affordable and flexible way to fill these gaps. There are many online resources to check your business loan eligibility.
If you feel you have issues with your business cash flows, you are not alone.
Because of cash flow issues, many business owners use personal money for business operations. Not only that, in some cases, they rely on credit cards for day-to-day operations. Improper planning and unexpected expenses are some of the causes of cash flow problems. Many business owners offer products on credit to their clients. If they do not repay the amount in time, it shows a negative figure in the cash flow statement.
Cash flow issues are common among small businesses. Regardless of how much money you have coming in, you must still cover your operating costs. Even if your company is otherwise financially sound, a decrease in available cash can have serious short-term or even long-term consequences. With a backup plan in place, you can continue to meet your day-to-day obligations until you are paid. Taking a business loan to fill small gaps and boost cash flow is not a bad idea. The operating costs of the business are high. It is not possible to handle such costs with the owner’s money. There are some other ways to boost cash flow using invoice financing or credit cards. But interest charged on invoice financing or credit cards is way higher than business loans.
A few factors need to be considered before applying for a business loan. They are:
- Interest Rates and Charges
The credit score, type of business, business experience, financial health, and collateral are some of the factors that affect your business loan eligibility. The chances of getting a loan at a lower rate are high if your business scores well in the above areas. Since the loan’s actual cost is the combination of interest rate and charges, it is higher than the exact loan amount. Try to take loans at lower rates.
One needs to consider some of the other factors:
- How much will you pay in interest?
- What will be the total fees over the life of the loan?
- Are there any fees for early repayment or late payments that can add hundreds or thousands of rupees to the cost of your loan?
- Are you being charged a reasonable interest rate?
- Repayment Period
A business loan with a higher repayment period attracts a higher interest rate. It is not suitable for the business owner. Try to take a loan for a shorter duration as the interest charged on the loan amount will be lower. A business loan EMI calculator can help you plan the repayment period.
- The Urgency for Funds
When compared to other types of loans, the approval on a business loan takes more time. If you need funds urgently, lenders can speed up the approval process but at a higher interest rate. Hence, manage your funds properly to avoid high interest rates.
The funds raised through other options like invoice financing or asset financing cannot be used for all purposes. On the other hand, business loans can be used in a more effective way to boost your cash flow, and these are considered “all-purpose” finance options. Before approaching a bank or NBFC for a loan, check your business loan eligibility criteria. Use an online business loan EMI calculator to plan your repayments.