ist magazine September 2022

Feature

How to Improve Cash Flow for Small Businesses

The last few years have been rocky times for the 32.5 million U.S. small businesses, according to the U.S. Small Business Administration (SBA). They have faced big challenges such as the COVID-19 pandemic, labor shortages and rising inflation. These firms, which account for 43.5% of gross domestic product, are also facing a lending crunch. The Associated Press reported in April that banks have been less generous with loans. In 2019, about 50% of businesses received the full amount of loans they requested. But in 2021, it was 30% - a steep drop. Minority- and women-owned busi nesses also feel they have a big hill to climb when it comes to loans. For exam ple, Black-owned businesses feel they are less likely to secure the full amount of financing they request. For women, a Bank of America study stated that 60% of female business owners felt they

Another “traditional” route is asset-based lending, which requires collateral. This type of capital has its own detractors, including substantially higher overhead to maintain and higher interest rates over time. Also, lenders prefer liquid assets such as securities, which many business owners may not have. A third option is factoring programs, which involve businesses selling their unpaid invoices in return for immediate working capital. Downsides include lack of control and higher costs compared to regular loans. Another detractor is stigma - factoring may signal to custom ers possible cash flow problems. ALTERNATIVE SOURCES OF FINANCING Many business owners have now turned to alternatives such as online lenders and crowdfunding. Businesses with a new product have turned to crowdfunding sites like Kick starter and Indiegogo. 

didn’t have the same access to financing as male entrepreneurs. In the face of this challenging environment, more business owners are taking a hard look at how to improve cash flow, from traditional sources to emerging alternatives. TRADITIONAL SOURCES OF CAPITAL To fund their business ventures, busi ness owners have typically turned to their personal savings or family and friends. Outside of that, bank loans remain a go-to option because of their relatively low rates. But those loans are becoming hard er to secure. Another issue is that many banks require multiple years of financial records, which emerging companies may not be able to provide. Loan financing also comes with strings attached, such as administrative red tape, restrictions, lag time in receiving the actual funds, and shorter coverage periods.

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istmagazine.com

September 2022