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cash flow loans for small businesses

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cash flow loans for small businesses

In summary:

  • cash flow loans for small businesses, help professionals to face a one-off cash deficit. You can therefore mobilize it when your availability does not allow you to cover your working capital requirement.
  • It can take several forms: overdraft facility, overdraft authorization, short-term credit, factoring, discount, etc.
  • Keeping a financial forecast should help you anticipate your difficulties. It also reassures banks when you apply for financing.

What is a cash loan for businesses?

The cash loan is a short-term professional credit, which aims to cover a temporary need for liquidity. In other words, this financing is suitable when your resources do not allow you to settle your short-term debts. In this case, you risk finding yourself with accounts showing a negative balance.

Your bank could then refuse your payments, which can damage the relationships you have with your suppliers. Furthermore, if the overdraft has not been authorized, it will generate fees that can quickly become significant.

Your company must therefore find solutions that will help it face these turbulences, without too much damage. To do this, it must finance its cash flow needs with a third party, which could be a bank or another financial institution.

Good to know

If your cash flow difficulties result from making major investments, such as work, you may be able to benefit from public assistance to finance them.

When might you need a cash loan for your business?

This situation arises from an imbalance between two variables:

  • Working capital requirement ( WCR) : this corresponds to the gap between the payments you make and those you receive.
  • Net working capital (NWC) : this refers to the amounts your company has available to cover its current expenses.

💡A company’s FRNG must always be higher than its WCR. When this is no longer the case, you risk no longer being able to honor the payment of your debts. It is in this situation that you will have to obtain a cash loan.

So you might need such financing in the following cases:

  • You are having difficulty collecting payment for your debts.
  • Your business has a strong seasonal character.
  • You experience a sudden rise in commodity prices.
  • You are seeing rapid growth in your business requiring an increase in your inventory, or the financing of new fixed assets.

Even if it can be justified, a cash flow imbalance remains an abnormal situation. It must remain occasional , so as not to jeopardize the sustainability of your business. If you are no longer able to meet your deadlines, you expose yourself to a risk of cessation of payments, which can lead to the liquidation of your company.

Good to know

To resolve this uncomfortable situation, you need to strengthen your self-financing capacity.

What solutions are there for obtaining a cash advance?

Several solutions can help you get through cash flow difficulties without putting your business at risk.

Need financing?

Contact a CA agency

Cash facility

You can negotiate an overdraft facility with your bank in the event of a temporary cash-flow gap. This solution consists of an authorization allowing you to have a negative balance on your account, over a defined period.⏳

It constitutes a one-time tolerance, which is not renewed automatically. It is generally granted to you for 15 days. When you use it, you then have 30 days to regularize the situation of your account.

Although it is usually the subject of a contract, this solution can also be implemented with a lighter formality. Thus, if you have a long-standing relationship with your advisor, a simple agreement by email could be enough.

Attention

The interest rate applicable to overdraft facilities is higher than that of bank overdrafts. Use of this mechanism should therefore remain occasional.

Authorized overdraft

The bank gives you the possibility of maintaining a negative balance, by paying overdraft fees. It sets certain limits, in particular about the maximum amount of your credit.

The overdraft authorization is a flexible financing solution, which adapts to recurring cash flow fluctuations. Indeed:

  • You can use it at any time, once it has been granted to you;
  • The bank does not impose a repayment deadline.

You usually negotiate this possibility when you open your account. However, you can request a posteriori that it be granted to you, or that your limit be increased.

Short-term cash credit

Also called campaign credit, short-term cash flow credit is a form of business loan. It is intended for companies whose activity has a strong seasonal nature. You benefit from an overdraft authorization for a fairly large amount. You will have to repay these sums at times when your company generates more income.

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