Can a business loan fix cash flow problems?
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Can a business loan fix cash flow problems?

Cash flow problems can be very serious for any kind of business, whatever sector or industry you operate in, and especially so in the case of small businesses. Cash flow issues can be caused by any number or combination of problems, from late payments to unexpected dips in sales, stock management problems or supply chain delays that affect normal trading.

There are lots of uncertainties at the moment for many SMEs, whether that’s COVID-19 pandemic recovery plans, concerns about higher energy costs, rising inflation this winter, or the knock-on impact of Brexit or other market changes. Any of these things could potentially cause a squeeze on cash flow, which can be challenging and very stressful to try and balance along with all of the normal everyday business operations.

Being aware of early signs that there could potentially be a problem will enable you to be proactive and look for a solution that gives you the best possible chance of keeping the wheels turning if you do face an issue that threatens your cash flow levels.

Most businesses plan for some minor cash flow blips and have a reserve to help mitigate risks like these, but sometimes the cash flow problems can be more extreme or last for longer than expected. This could mean that even businesses that have taken great care to prepare themselves may still sometimes run into cash flow shortages that could have company-wide knock-on effects, such as not being able to pay suppliers or staff or invest in or grow the business at key times.

If your SME does find itself with a cash flow problem, it’s important that you are able to resolve the immediate issues quickly so you can keep trading. Here are some of the key things you need to know.

Is a business loan the answer to cash flow problems?

The right type of small business loan could potentially solve your immediate cash flow issues and give you the time needed to get things back on track, whether that’s by recovering debts, sorting out supply chain problems, shifting some stock, or taking whatever other steps are needed.

Before taking out a loan, it’s important that you have a good understanding of what caused your cash flow issues in the first place and have a strategic plan in place to overcome these problems so that you can cover your usual operating costs, repay the loan and build new reserves to help take the business forward.

Take a look at our guide to cash flow management if you want to know more about how to best protect your business from these types of issues, or stop them from reoccurring in the future.

It’s essential to ensure that you’re taking out the right kind of loan for your business and your specific circumstances, so that the repayments are affordable alongside your other operating costs. You can also minimise the risk that you’ll end up in the same situation again.

Business loans for cash flow

There are a few different types of business loan, and some may have restrictions on what you can do with the money you borrow. If you’re taking out a loan to help with cash flow issues, then it’s important to make sure that your borrowing is the right kind for your business and situation. You can also take a look at our article on whether cash flow loans are right for you.

Some of the factors to consider include:

Ease of the loan application

The idea of applying for a business loan to help with cash flow can be very daunting for many SMEs, especially when you’re trying to keep your business going in a tough situation. Having a straightforward application process, without the need for in-person interviews or long and complicated forms, can make all the difference to some businesses needing some assistance with a cash flow problem.

Any restrictions on loan use

It’s important to check with a potential lender whether there are any restrictions on a business loan borrowed from them, which could perhaps stop you from using it to ease cash flow problems.

Business loan eligibility

Every business lender will have its own eligibility criteria. This might include a certain number of years in operation, along with minimum turnover levels. At Capify, we require:

  • Your business to be a UK-based limited company
  • At least 12-months of trading history
  • More than £10,000 per month being processed through your business bank account

We can give an eligibility decision within a couple of minutes, without a hard credit check being required.

Business loan lending criteria

For some lenders, the criteria on which they lend may be based primarily on credit history, which can be a barrier to some SMEs who are looking for new business loans with bad credit on their file. Other lenders, including Capify, look beyond the credit history, especially in light of the challenges of the COVID-19 pandemic, and take each business’ individual circumstances and growth potential into consideration when making business loan decisions.

Speed of the loan process

With a loan that is specifically required to help with cash flow, the speed of the application, the decision and the period of time before your business receives the funds could make a big difference to your ability to continue operating. Some small business loans and alternative finance options, including those provided by Capify, can be applied for, approved and the funds paid into a business bank account in as little as 24-hours.

Repayment terms

Generally, a loan to help fix cash flow problems will be short-term borrowing to temporarily boost your working capital, which will be repaid over the course of a few months. Many businesses find it beneficial to have small and regular repayments, for example daily or weekly, where for others it might work best to have monthly repayments for their loan. It’s important that your business finds a lender with repayment terms that will work for you and your circumstances, to help ensure that the borrowing helps you to fix the cash flow issues rather than adding to the stress and strain on the company’s finances.

Capify loans

Capify offer a range of alternative finance options which could potentially help a small business with cash flow issues.

You can apply for a loan for your business from Capify in several different ways. You might want to start with our simple online application and get an instant decision on your eligibility. Or. if you’d prefer to talk to a member of our team, we’d be happy to guide you through the process. Give us a call today on 0800 151 0980.