Business loans aren’t only for businesses that are in trouble. If you use the right loans properly, they can be a great tool to propel your business forward. The key is understanding cash cycles and making sure your business is currently suited for this plan.
If your inventory has a short cash cycle and high margins, you can take advantage of fast small business loans in a better way than most other businesses. Here we will go over how you can use these loans to propel your business. The key is that they’re used properly.
The Cash Conversion Cycle
The Cash Conversion Cycle (CCC) is a great metric to keep in mind. What it describes is the speed at which the cash you have is converted into even more cash. It works like this:
- First, you use cash on hand, which you use to purchase inventory
- Next, you use your inventory to make sales
- Finally, you have more cash
It’s a simple cycle but optimizing it isn’t easy. If it were, every business would be successful. It takes strong management skills it takes to achieve a short CCC.
While the concept is simple, the factors that go into your CCC are complex. It relies on your suppliers and the terms they offer you. It also relies on your customers and their own needs and timing. So, it’s always best to focus on the inventory that has the shortest possible cycle, with the highest possible margins.
Improving your CCC through your own company’s management takes time and effort. Your overall management strategy must be solid.
Where Loans Come Into Play
Certain business financing options can help you improve your CCC. You can use these options to fill in the gaps at the beginning of your CCC. They also fill in the financial gaps left by slow-paying customers who can ruin your cash flow. To speed the whole process up, you need a way to cover these holes in your CCC.
You can use certain fast small business loans to fix your CCC. With these fast loans, you can purchase inventory and cover the expenses that your late-paying clients are keeping you from being able to afford.
Late-Paying Clients – What Kinds Of Loans Can You Use?
To deal with your late-paying clients, you can use fast invoice factoring options. Invoice factoring involves selling your accounts receivable (invoices) to a third party. Of course, you would be selling your invoices at a discount. Many lenders who offer invoice factoring can offer you a loan very quickly.
Another option is invoice financing, which is similar but still altogether different from invoice factoring. Invoice financing involves you borrowing money against the invoices that are due to you. You would use your inventory as collateral should your customer go bankrupt or otherwise fail to pay you.
Fast Small Business Loans For Inventory
With your slower invoices covered, you can then focus on your inventory. You can start by using your cash on hand for inventory. You would use the money you received from your sales/invoices, whether paid or financed.
Of course, keeping up with inventory can also be quite difficult. If your margins are good and your sales are strong, you should consider fast working capital loans.
Working capital loans are loans meant for day-to-day expenses. They can be used for expenses like payroll, rent, and, of course, inventory. As is the case with invoice factoring and financing, if you have a strong financial history, you should be able to secure a loan fast.
Of course, working capital loans aren’t your only options. Business term loans, so long as they are fast, can prove even more useful. Then there are business lines of credit, which offer you more flexibility. However, keep in mind the higher APRs which typically come with lines of credit.
Using these methods, you can cover the gaps in your CCC from one end of the cycle to the other.
Things To Keep In Mind With Fast Small Business Loans
Using fast small business loans to grow fast isn’t a plan every business owner will be comfortable with. However, for businesses with short cash cycles, these loans can make a huge difference. The key, again, is that they’re used properly.
Of course, you should be careful when using these loan options. While all of the options discussed are generally less risky than loans with set-in-stone, regular repayments, there are downsides. You are always paying money for your financing options, so you should pay attention to how they affect your bottom line. Cash flow problems can result from any form of loan mismanagement.
If you have a strong CCC, however, you can take advantage of fast small business loans and grow even faster. If you have your bottom line already looked after, fast working capital loans can make help further ensure your growth.