Life is unpredictable, and so we cannot be sure about the future, and how it unfolds. As much as we try to be proactive and plan in our businesses, a problematic situation never comes with a warning sign. Similarly maintaining a good account of cash flow running any sort of business, is the trickiest thing to carry out. Many times, due to some unpredictable circumstances, businesses can face a sudden cash crunch. Whether you are a big business or a small business owner, it can turn out to be a minor crisis that could lead to the business liquidation if not appropriately handled.
Cash crunch could occur due to any of the following reasons, delay in cash receivables, a mishap or an event leading to an asset or monetary loss resulting in unexpected expenses, the sudden deficit in the production workforce or a genuine mistake in the proper cash flow accounts. There can be many more mishaps that can call for instant cash requirements. Smart and futuristic businessmen never fall short of cash when they run into such a situation. They always keep emergency cash handy to manipulate the overall expenses and making sure that their business keeps running.
However, in the opposite scenario, the businessmen rely on quick short-term financing to combat the unexpected cash crunch. Many entrepreneurs do not foresee the tide of their business waves and do not keep handy cash for the sudden hit in their expenses. There are different types of short-term financing, let us investigate the feasibility for each one of them, as we go further.
This is the simplest type of short-term financing. In this type of credit facility, the company can withdraw an excess amount from what it has in its account. It is a cash credit facility provided by the banks to the business owners. Of course, there is an interest rate charged only on the over-drafted amount. The interest rate is applicable based on the company’s credit rating. Companies with good past credit score can opt for this type of short-term financing, while they are in a cash crunch to cater to significant or simple expenses.
Accounts receivables loan / Factoring
It is evident from the word receivables; it is the cash payment that is outstanding towards a certain business. Many small businesses sell those outstanding invoices at a discount to the specialized accounts receivables Finance Company, in return for some business financing.
It is a way of instantly improving the cash flow against your pending or accounts receivables. It helps in generating instant funds for your certain sudden business operations. Any due payments or the receivables that are already late towards your business invoice are hard to recover and keep track of. They are beneficial for undeniable reasons like fast access, no selling out your business subsidiaries, no collateral feel, and entirely stress-free due to fast and simple financing. It also has very reasonable charges with easy approvals. In this type of financing, the lender charges interest fees based on the number of days of outstanding debt.
As the name suggests, this short-term financing is instant and fast access to the money with complete online processing. It has a very high approval rate and quick, easy, and secure application with electronic money transfers. The best thing about this short-term loan is that if you are eligible, it will be processed within 24 hours.
Merchant Cash Advance
Merchant cash advances are a cash advance that is just like a short-term loan. In this type of financing, the lender lends the amount needed, in return to the loan being paid by giving access to the lender, the business credit machines. Hence, every time the customer makes a purchase on his credit card, a certain percentage is charged provided to the lender. Few industries have more acceptance of credit card payments. Therefore, they are more likely to opt for merchant cash advance financing. It has greater flexibility, easy to handle and understand the importance of using merchant cash advance towards your short-term business financing. This cash advance could be used in various directions, like updating your equipment, bothering new stuff for new marketing materials, instant rent payment, or expanding the business by offering other products and services.
Lines of Credit
Another way of generating instant cash is by using lines of credit. It is just as using a business credit card. The bank sets an amount as credit limit and the business owners’ access to the cash as much as they require to cater to urgent cash needs. One good thing about it is that the percentage is set up according to the amount withdrawn by the credit line. Eventually, the monthly payments will differ and will be determined by the percentage of credit limit used. Again, it’s easy approval and quick processing makes it valuable.
This is beneficial specifically for the companies in export businesses. The government supports the growth of the export, and the government provides this type of financing. This is short term but a bit time-consuming processing, if you are looking for the urgent cash generation.