The Role Of Cash Flow In Obtaining A Small Business Loan

Small business loans can be an important part of starting a new business. They provide the cash flow that is necessary for a business to run smoothly. However, you will also need to have cash flow yourself in order to prove that you can run your business smoothly.

The Importance Of Cash Flow

When seeking a small business loan, the factor that most affects your likelihood to be approved is your cash flow. Lenders will want to see your bank accounts, accounts receivable, credit card statements and your in and out cash flows. You will want to make sure that your books are accurate and up-to-date in order to provide lenders with information that is easy to reference. 

Projected Financials

Include the current and projected business financials. This is an important part in showing that your business will have the finances necessary to carry expenses and loan payments now and in the future. To show that your business will have adequate cash flow, you will want to have a description of your company, a description of the product or service that you provide, a clear promotional, marketing and sales strategy, a thorough analysis of the industry that you are a part of, a plan for your facility and operations, a clear management team and an analysis of your strengths, weaknesses, threats and opportunities. 

Providing Collateral

Providing collateral is a great way to encourage lenders to extend credit. Collateral is something that can be taken and sold if you are not able to pay your loans. This can include inventory, real estate or equipment. One form of collateral is a blanket lien that provides the lender with the right to take any of your business assets. 

You may also be required to provide a personal guarantee of 20% or more of your business. A personal guarantee will place both your credit and your personal assets on the line if you are not able to make good on your loan.

How Cash Flow Can Help You Avoid Providing Collateral

If you are concerned about offering your assets as collateral, you can seek an unsecured small business loan. This can lead to a higher interest rate and your ability to obtain a loan will depend more on your cash flow and credit score, but you will still have your assets in the event that your business fails and by being able to sell your assets, you will be in better financial shape if your business is forced to close.