Running a business requires cash: You have to pay employees, vendors and bills, and you need a steady stream of money to cover those monthly expenses.
But it’s not easy. Some 42% of companies with 11 to 50 employees name cash flow as a top challenge, according to a 2015 survey of 1,088 businesses by Wasp Barcode Technologies, which makes inventory tracking systems for small businesses.
Put simply, cash flow is the amount of money coming into and going out of your business. Positive cash flow means you have more money flowing in than flowing out, says Ami Kassar, founder of MultiFunding, a business financing advising service. If you don’t have enough incoming cash to manage day-to-day operations, you have a cash-flow gap.
In the last decade, online lenders have emerged to offer small-business loans and other financing solutions for small businesses with inconsistent cash flow. Here are six of those options for three cash-flow gap scenarios:
For businesses with accounts receivable
If you get paid on invoices, you’ll likely experience a gap between when you deliver your product or perform your service and when you get paid. Invoices are typically repaid in 30, 60 or 90 days, but an invoice financing company can help you get paid early.
- BlueVine advances 85% of your invoice amount and collects the full amount from your customers. You’ll get the other 15% when your customers pay, minus fees. Standard fees are 1% a week but can be as low as 0.5%, and annual percentage rates (APRs) are 23% to 61%. To get started, apply online and upload your outstanding invoices.
- Fundbox advances 100% of your invoice amount. You’ll make weekly repayments plus fees for 12 weeks, and if you pay off your advance early, the remaining fees are waived. Total fees range from $52 to $72 for every $1,000 invoice. (NerdWallet calculated the APR: With $482 to $682 in fees on a $10,000 invoice over 12 weeks, the equivalent APR would be 43.95% to 63.73%.) To get started, create a Fundbox account and connect your existing accounting software; Fundbox integrates with QuickBooks, Xero, FreshBooks, Wave and Harvest.
| Apply on BlueVine’s secure site (Read our BlueVine review) | Apply on Fundbox’s secure site (Read our Fundbox review) |
| Get Started | Learn More |
For businesses that need to purchase inventory
If you run a retail, wholesale or manufacturing business, you might experience a cash-flow gap when you order inventory but have to wait a few days, weeks or even months before you sell it and get paid. A revolving line of credit or short-term loan can help bridge that gap.
- Dealstruck offers two types of revolving lines of credit: one specifically designed for accounts receivable, and one for financing inventory. Both let you borrow up to $500,000, repaid in up to six months. The APR ranges from 15% plus prime rate (now 3.5%) to 22% plus prime. It’s a good option for newer businesses; you only need to have been in business for one year to qualify.
- Fundation offers loans up to $500,000, repaid in one to four years, although your term will be on the shorter end of that spectrum if you’re using it for cash-flow management. You’ll pay 8% to 30% APR, and there’s no fee if you repay early. Fundation is only an option for more established businesses; you need to have been in business for at least two years and employ at least three people to qualify.
We took a more detailed look at these two lenders in this comparison to determine the right inventory financing for your retail business.
| Apply on Dealstruck’s secure site (Read our Dealstruck review) | Apply on Fundation’s secure site (Read our Fundation review) |
| Learn More | Learn More |
For businesses with seasonality
If your business experiences seasonality — meaning you do the bulk of your sales or services during a certain time of year — you should expect cash-flow issues and plan accordingly, says Nicholas Clements, co-founder of Magnify Money, which educates consumers about financial products. But if you’re hit with an unexpected slow season and you’re confident you’ll get paid in the near future, you can turn to an online cash-flow lender. You’ll get cash fast, but you’ll pay high interest rates.
- Kabbage offers lines of credit up to $100,000, repaid in one to six months. You can get funded in minutes, but you’ll pay around 41% APR, according to Kabbage’s loan estimator based on a $2,000 loan repaid in six months. To apply, you need to link Kabbage with your business checking account, accounting service (such as QuickBooks or Xero) or another business account (such as Etsy or PayPal). The company primarily uses data from those accounts to underwrite loans.
- OnDeck offers lines of credit up to $20,000, and it automatically deducts weekly repayments for up to six months. Annual percentage rates for OnDeck lines of credit range from 30% to 49% APR, according to the company’s website. You need to have been in business for at least one year to qualify.
NerdWallet also compared Kabbage and OnDeck to determine which lender is right for your small business here.
| Apply on Kabbage’s secure site (Read our Kabbage review) | Apply on OnDeck’s secure site (Read our OnDeck review) |
| Learn More | Learn More |
The bottom line
When it comes to managing your cash flow, take a proactive approach. “Don’t just think about your cash-flow needs when you’re running out of cash,” Clements says. He recommends using accounting software, separating business and personal checking accounts, and looking at your bookkeeping more often than just during tax season.
If you still find yourself in a cash crunch, however, one of these online financing options can help you bridge the gap.
If you’d like to read more, NerdWallet has come up with a list of the best small-business loans to meet your needs and goals. We gauged lender trustworthiness and user experience, among other factors, and arranged them by categories that include your revenue and how long you’ve been in business, so that you know which loans you qualify for.
Find and compare the best small-business loans
Compare business loans
To get more information about funding options and compare them for your small business, visit NerdWallet’s best business loans page. For free, personalized answers to questions about financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.
The post was updated to reflect the new prime rate as of December 2015. It was originally published Aug. 10, 2015.
Teddy Nykiel is a staff writer at NerdWallet, a personal finance website. Email: teddy@nerdwallet.com. Twitter: @teddynykiel
Image via iStock.
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