Sometimes a business will go through highs and lows in their overall performance that can affect cash flow. If there is low cash flow, then companies may struggle to pay for salary, rent and other bills. You do not want to get yourself ever in a position where you cannot pay your employee payroll, and the rule of thumb is to try to always have three times your general monthly outgoings held in a bank account so that if things do go in the wrong direction, there is money available to pay essentials. That sounds simple but not something that is easy to achieve. Rather than have a company secured or unsecured loan you may wish to get a small business line of credit. Below are some of the points to consider about this lending method.
Credit When You Need It
If you manage to negotiate a line of credit, then you can take funds when you need it. It’s almost like a credit card however it is real money that you can take when you need it. There are interest rates connected to this and monthly payments then due on the money you receive. If your blip in cash flow is only temporary, then this may be a much better solution rather than a loan or overdraft. This method is not as well known; however, there are many different companies online that are offering this type of service. If you don’t use it, then there are no charges.
When to Get a Loan
If you are looking to undertake a project and you know exactly how much you will need for that project and how it will be repaid, then a loan may be a better option rather than a credit line. That way the funds are separated from regular business and put aside specifically for this purpose. The bank can offer loans, but there are a lot of other places out there keen to lend you money promptly. If you have a look online, some companies will allow you to apply and give you a decision in minutes based on the information you have supplied. These companies will do a quick credit search on you also to ensure that you don’t have credit history problems and that you are low risk regarding not being able to repay.
There is always the option of speaking to your bank and asking if they will either give you an overdraft or extend the one you have. An overdraft should still be considered as a temporary solution, as the interest rates connected to overdrafts can be significant. Sometimes you can be offered the first $1k free depending on the type of account you have and the relationship you have with the bank. If you do apply for an overdraft, it can almost feel like a loan where generally you will need to fill in different forms and justify your reasons for this request.