• Managing Receivables – Receivables refer to the amount you are owed for providing your services. Usually, new businesses fail to manage their outstanding receivables, which in turn lead to a shortage of income to run their daily operations. It is reported that about one-third of the small businesses in the US go on with roughly around $15,000 in outstanding receivables.
• Managing Payables – Although the advance payment method helps businesses to charge for their services beforehand, it can take a long time to actually get the invoice paid and process it for their daily operations. Around 60% to 70% small businesses reported that it takes about 25 to 30 days to receive payments after issuing the invoices to their customers, while they still have to pay to their suppliers to ensure smooth business operations.
• Managing Employees – Even though the income of the business is affected due to late payments and outstanding receivables, the company cannot delay employee remuneration. However, most small businesses find it very difficult to pay their employees on the assigned payday because of the lack of cash flow. When employees are not paid on time, the company might not be able to retain the required workforce for daily operations.

Resolving Cash Flow Challenges

Monitoring the payments and receivables on a weekly basis is the best way to keep track of the cash flow. Nonetheless, as these can be sometimes out of the control of the business owner, it is always better to seek out practical funding options to manage the cash flow troubles. For instance, availing a short-term loan from online lenders can be of great help in such scenarios. They release the loan amount very quickly that you can use to fulfill your business’ financial requirements. At the same time, continue keeping an eye on your outstanding receivables and follow up on the invoices promptly. This way, you can repay the loan amount without any hassles.

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Depending on the current financial situation of your business and your future needs, one may be better for your business than the other. A term loan for a business is best used as an investment. If your company needs to purchase fixed assets, additional equipment, or purchasing a business, a term loan will give you a lump sum payment that you can use for whatever your business needs. Then you will have monthly payments to settle it off until it is completely paid off.

Note that you will not be able to take more money out with the same loan though; it is a fixed amount. If your business needs more money after this loan is paid off, you can apply for another term loan. When applying for the loan, be prepared to show the bank what you need the money for. Have a plan that you can show them that explains how the money will be spent, and how this will make your company more money. When they see this, they will be more likely to lend you the money, as they have seen your business plan and have faith that you will not have any issues paying it back.

A business line of credit is beneficial to a business that needs the funds as operating funds. This means the money will be used for business expenses. It may be used for paying bills, purchasing equipment that may be needed down the road, and to cover any surprise costs when you do not have the additional cash flow to cover.

A line of credit is a great option for those who are looking for something short term. If you know you will be able to pay it off in less time than a term loan, or if you think you might not even use most of it, then a line of credit may be the way to go for you. Since you are only charged interest on the amount that you use, and you can view your balance at any time, some choose this option over a term loan because it can be dealt with or paid off simply when you have the money to make the payments.

When deciding what is best for your business, it is better to review your business and see where you are sitting currently. Then look at the goals you have set for your business and what you need to achieve that goal. Once you have this information, you can have a rough idea of how much you are going to be asking for your line of credit or term loan, and how soon can you pay it off. Once you know the answer to this question, you will be ready to decide what is best for your business.

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Differences between Line of Credit and Term Loan

A business line of credit is very much like a personal line of credit or home equity credit line. It is also similar to a credit card. This means that you will have access to finances, if you need them. The line of credit will allow you to have access to the amount your business is approved for, and you will not be making any payments on it, or paying any interest on it, unless you actually used that money.

Lower interest rates are a common benefit of having a business line of credit. The closing costs are also lower than if you choose to take out a term loan. Now, a big difference between a business line of credit and a term loan is that if you start missing payments, or your payments start tricking in late, your bank may start charging you a high interest rate on a line of credit. On a term loan, your rates will stay the same throughout the length of the term.

A business line of credit can be renewed every year or so. This way, you can go over your credit line with your bank during this time, and adjust or plan as needed. For a business term loan, you would need to talk to your bank and they would then give you the money in one lump sum. Before approaching the bank, you should know how you plan to pay it back within the period (term) you have agreed upon.

Term loans can be very attractive to some as you can choose the term and interest rate (fixed or variable) at the time you take the loan. Yet repayments on the term loan will begin immediately after the loan is taken out, even if you have not touched the money yet. The interest rates and the closing costs are known to be higher for a term loan than with a business line of credit.

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