Economic and financial fluctuations can be quite unpredictable, affecting the cash flow of your small business. Cash flow is basically cash “in hand” that you can use for any need of your business: from regular operations to cover unexpected emergencies. Cash flow is the blood of a company: it allows for smooth operations and uninterrupted production. It keeps it alive!
Are we exaggerating? No, we are not. See it for yourself. Simply go to Google (or your preferred search engine), and type in “Why do businesses fail?” in the search box. You will find that one of the most frequent factors leading to business failure is insufficient cash flow.
This is because every business at some point in their cycle encounters situations that require unexpected cash expenditures. These type of expenditures need funding to maintain stability. But where can you access that funding when the time is essential?
This is where solutions like unsecured business loans and business credit cards come in.
Both solutions are popular tools to finance expenses in many businesses. However, they do have different features, advantages, and disadvantages. Which one to use? It will depend on your business needs and goals, and your unique situation.
Quick definition guide
Before we provide examples for using each solution, we need to clarify some definitions:
Collateral:
Collateral is an asset (business or personal) that you pledge as a security for a loan. So if you are not able to pay off your loan, the lender then has the right to seize that asset.
Unsecured business loans:
These are small business funding opportunities which do not require any collateral for the fund to be approved. These loans are short-term (usually up to a maximum of 12 months) and provide you with the quick funds you need for your business.
Business credit cards:
Small business credit cards provide businesses with easy and quick access to a revolving line of credit for direct purchases and cash withdrawals. So they act as a solution for ongoing access to business funds.
Examples for choosing between unsecured business loans and business cards:
Scenario #1:
A clothing retailer needed $150k for a combination of purposes including buying stock, purchasing a new distribution license and launching a marketing campaign. This retailer had no assets to provide as collateral.
However, he was able to quickly obtain an unsecured business loan based on his good credit history. This was the best choice since $150K is quite a large amount to be charged in a credit card. Business loans work better for larger investments that can be repaid over a long period of time.
Scenario #2:
An automotive repair company recently faced technical difficulties in one of its most used equipment: a high-tech repair diagnostic tool. Because this tool was not working, the business owner was losing profits every day. This owner needed a quick cash injection of $5K to repair the broken machine.
He chose to use his business credit card to pay for the repair of the machine since basically it was an emergency and needed the machine as soon as possible. Once the machine was quickly repaired and operative, it generated enough profit to pay back the credit card in a timely manner.
Scenario #3:
“Storyline Financial Planning” is a financial planning practice serving millennials. It’s still a small startup company operating from the home of the business owner. The initial costs where minimal: a laptop, setting up a website, and some software for small businesses. So the business owner, who didn’t want to go through the hassle of a loan application, decided to use a business card to pay for the initial expenses.
He was able to finance his startup costs without paying a fee or interest because he’s very responsible and always stays on top of his finances: he implemented a plan that allowed him to pay off his credit card balance at the end of each month, thus without before accruing charges.
Choosing your financial path
Are you a business owner going through a similar situation, where you need cash in hand as soon as possible? Do you have a great idea and a plan for a successful business, but don’t have the funds necessary to start up your business?
If you are interested in an unsecured business loan, you can check easily apply at Camino Financial.
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