Small business owners are more often than not challenged with cash flow management constraints especially when faced with fronting the cash to pay employees and vendors before getting paid from customers. And if you are dealing with some big players in the market your NET 30 days terms just turned into 90 days which means you have to survive for 3 months without getting paid.

We would all love to have 6 months of working capital saved up and ready for use when needed. Unfortunately it’s not a reality in many cases and therefore we rely on bank loans to get us through. Bank loans are great if used properly.

Below are some key considerations that need to be addressed when it comes to leveraging your business assets:

Bank Line of Credit can be the most distressing type of borrowing

  • The line can be called at any time for the full amount due – especially if the borrowing is up to the max for a lengthy period of time;
  • Make sure to read loan facility agreement and take note of covenant requirements – this is one of the most overlooked things by business owners. Covenants often include certain debt to earnings or debt to equity ratios, a period of time with zero balance, submission of financial statements etc. Noncompliance with any of the covenants may result if non-renewal of the Line of credit;
  • If you end up in an alarming cash flow position you may want to discuss a possibility of converting Line of credit balance into a fixed term loan that will give you the time you need to pay off the loan.

Vehicle and Equipment Loans can be refinanced with your current bank at a lower interest rate

  • Consider consolidating all your loans with your banking institution – it bears an additional risk since the bank will most likely colaterize all your assets but in most cases it will save you some money due to lower interest rate.

Financing personal living expenses through business loans

  • This might seem like an obvious NO NO for most but unfortunately some business owners treat business borrowings as their own personal line of credit;
  • Business will earn income and will be able to service the debt;
  • A business owner as an individual is limited to the income of the business and therefore financing personal expenditures will leave you in a hole because there will be no extra income to satisfy the debt.

To find out more about small business loans and your cash flow management, give us a call at 407.650.9088.