Business Cash Flow Financing Options

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BFF Manager

Small businesses have an array of cash flow financing opportunities to choose from. The marketplace is brimming with options that enable operational efficiency, lower working capital costs and improve profit margin. However, not all financing solutions have the same capacity to benefit businesses the way cash flow financing does.

Revolving Credit

Revolving credit is liability financing of cash flow if it is unsecured. If a business has maintained timely payment of debt accounts while maintaining sufficient working capital, then it is more likely to be approved for lower cost revolving credit be it fixed or variable rate. Even so, payment terms, promotional rewards and debt issuer also affect the cost. A benefit of facilitating cash flow this way is that it provides easy access to short-term liquidity on a continual basis.

Accounts Receivable Factoring

Receivable factoring provides more immediate access to asset capital and is therefore not a liability. It also helps enhance business performance metrics and lowers cash conversion cycle costs. Using this method improves financial statistics such as the receivables turnover ratio. Moreover, when financial institutions review business financial statements for loan applications or debt underwriting, measurements such as cash flow ratios affect borrowing rates and project management costs.

Equity Issuance

Issuing company stock to improve cash flow helps secure operational liquidity and facilitates business expansion such as acquisitions or project development. However, adding equity also risks stock dilution and sometimes costs more than other financing options. Another potential risk with financing cash flow via equity is not meeting capitalization objectives. In other words, even though new stock is issued, there is still a risk that it might not be sold in time.

Capital Gains

If a small business owns stock, then it has the potential to finance cash flow from the sale of that stock. This is even more the case when company shares have appreciated in value over the long term. Expenses incurred by this type of cash flow financing include taxes and remuneration. Nevertheless, if the market conditions are right and an investment portfolio needs to be reallocated, then financing cash flow from capital gains is useful.

When considering business financing options such as these, taking the time to speak with a financial professional helps ensure the suitability of funding. Moreover, since business objectives and financial situations differ, choosing the right financing optimizes financial decision making by reducing exposure to risk, improving business creditworthiness and reducing financing costs.

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