How to Improve Small Business Cash Flow


The past few years have been tough for America’s 32.5 million small businesses, according to the US Small Business Administration (SBA). They have faced great challenges such as the COVID-19 pandemic, labor shortages and rising inflation. These companies, which account for 43.5% of gross domestic product, are also facing a credit crisis.

The Associated Press reported in April that banks had been less generous with loans. In 2019, approximately 50% of companies received the full amount of loans requested. But in 2021 it was 30% – a steep drop.

Minority and women-owned businesses also feel they have a big hill to climb when it comes to lending. For example, Black-owned businesses believe they are less likely to get the full amount of financing they are asking for. For women, a Bank of America study found that 60% of female business owners felt they did not have the same access to finance as male entrepreneurs.

Faced with this challenging environment, more and more business owners are carefully considering how to improve cash flow, from traditional sources to emerging alternatives.

Traditional sources of capital

To fund their business ventures, business owners have typically turned to personal savings or family and friends. Other than that, bank loans remain a go-to option due to their relatively low rates. But these loans are becoming increasingly difficult to obtain. Another problem is that many banks require several years of financial documents, which start-up companies may not be able to provide.

Loan financing also comes with strings attached, such as paperwork, restrictions, time limits for receiving actual funds, and shorter coverage periods.

Another “traditional” route is asset-backed lending, which requires collateral. This type of capital has its own detractors, including significantly higher overhead costs to maintain and higher interest rates over time. Additionally, lenders prefer liquid assets such as securities, which many business owners may not have.

A third option is factoring programs, which involve companies selling their unpaid invoices in exchange for immediate working capital. Disadvantages include lack of control and higher costs compared to regular loans. Another detractor is the stigma – factoring can alert customers to possible cash flow problems.

Alternative sources of funding

Many business owners have now turned to alternatives such as online lenders and crowdfunding.

Companies with a new product have turned to crowdfunding sites like Kickstarter and Indiegogo. But there can be pitfalls. Setting up a campaign that goes viral and attracts supporters is not guaranteed.

Online lending platforms are another attractive form of financing, but although cash flow can be instant compared to traditional banks, these online loans come with higher interest rates and steep late penalties. A quick look at online lenders reveals APRs of 10% or more. Traditional bank loans are 3% to 7%.

New financing and cash management solutions

For business owners who find the drawbacks of traditional financing overwhelming or who are wary of alternative modes, there is another avenue to consider when managing cash flow. Increasingly, non-bank businesses are integrating banking-like services into their technology platforms, a concept known as integrated finance. These banking-like services could include bill payments, processing and lending. The benefits of integrated financing, like Plaid or Apple Pay, are transparency, ease of transactions, capture of relevant customer data, and they provide another source of revenue for businesses.

Business owners considering this as a solution should consider the speed and ease of payments, costs, and other benefits when choosing between platforms. For example, C2FO, a fintech software company, offers an integrated and secure platform where businesses can speed up bill payments while offering a discount to customers who pay early.

One benefit of this platform is improved cash flow, giving businesses the power to determine the best time and terms to get paid. Entrepreneurs who partner with C2FO also avoid the heaviness and cost of traditional and alternative financing avenues.

As an alternative, C2FO now offers the C2FO CashFlow+TM Card, a new card that extends C2FO’s established prepayment system. The process is as follows: business owners choose which invoices to expedite and prepayments are sent to the CashFlow+ card.

Where this differs from the typical prepayment is that no discount is given to guarantee prepayment when the card is used. Businesses get paid early and in full and can then use the card, which also offers 1% cash back on purchases. Business owners are rewarded to get paid now so they can grow, transform and innovate – a different approach to more traditional and alternative ways of obtaining capital.

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