Cash crunches can occur due to unfavorable business environment, changes in government policies (e.g. demonetization and GST) or seasonal shifts in sales. However, with some prudent financial management and the help of FinTech services, you can avoid problems like shortage of working capital loan which are usually associated with a cash crunch.
Here are some ideas to help you manage your finances and get through a cash crunch with relative ease.
Streamlining your Cash Flow
A positive cash flow statement allows you to have ready money when the need arises. Positive cash flow means that the amount of money coming into your business is more than the amount that is going out. Money earned through sale of goods and services and by providing other auxiliary services accounts for the cash that is coming in, while the money you spend on manufacturing, operations, rent etc. is the cash that is going out. Striking a positive balance between the two is not very difficult if you are using data-based metrics to scale your business operations.
Another thing that will help your business in maintaining a positive cash flow is the timely management of your receivables. Most working capital cash crunches arise because of delayed payments from your customers. When you are not getting paid on time for a product or service, you have to rely on alternate finance to run day-to-day operations, which eventually becomes a vicious cycle of debt and revenue shortfalls.
Paying your dues on time is also an important factor that reflects positively or negatively on your cash flow statement. Paying your rent and utility bills, vendor invoices, taxes etc. allows you to avoid penalties and fines, thus saving precious cash resources for business use. However, if you have a habit of missing due dates then it has a negative impact on your cash flow and restricts the amount of ready cash you have.
Getting a Credit Line
A credit line allows you to get a loan from a bank up to a specific limit. However, in this case you pay interest only on the amount you have presently borrowed. For example, if your credit limit is set at ₹ 10 lakh but you have borrowed only ₹ 2 lakh at present, then you will be paying an interest on the borrowed sum only. If you choose to withdraw another ₹ 1 lakh from the bank then your interest payment shifts accordingly to the current outstanding amount i.e. ₹ 3 lakh in this case.
While credit line is a good option for seasoned businesses, there is a downside to it as well. Credit lines are usually extended by traditional banking institutions which require a lot of paperwork and hassle to get one. New and upcoming business usually finds it hard to get a credit line for managing working capital and business expansions.
Using Credit Cards
A credit card issued in the name of your business can also help you overcome a temporary cash crunch. Since, the average repayment period on a credit card is about 21 days after bill generation, you can get up to 50 days of credit by timing your credit card expenses. If you use your business credit card on the first day of the monthly billing period, it gives you enough time to get the money back through revenues and repay it in time.
However, using credit cards also has its risks. If, for some reason, you are unable to repay within the stipulated period, you may find yourself paying a lot of interest.
Apply for a Business Loan
The best way to get your finances in line is by applying for a business loan. Now, a lot of people who own small and medium businesses are wary of getting into a debt trap. But a business loan is totally different than a personal loan or taking money from a private money lender. Business loans tend to have relatively low interest rates and are optimized for a business as per its earnings and expenditure.
If you have a healthy business profile, good credit rating, a reliable supply chain and pay your taxes on time, you can get business loans online from NBFCs like Lendingkart. Online business loans allow you to avoid the bureaucratic hassles of applying for a loan with a bank. They also have a faster processing time. For example, a completed application for business loan can get approved and funded within 3 days’ time by Lendingkart. However, it does require you to have valid proofs of the requisite documents.
Additionally, NBFC loans also come with a renewal facility which lets you borrow the same amount again once you pay off the existing loan. It is better than having a credit line actually, since you also get the facility of flexible EMI payments and increased credit limits. Lendingkart Finance allows you to repay your loan in monthly or bi-weekly payments, letting you adjust your liabilities according to your invoicing cycle. Moreover, as your sales / revenue increases, Lendingkart increases your borrowing limit, giving you access to more funds for working capital management or business expansion. Furthermore, as your relationship with the company matures and your business’s credit score improves, Lendingkart can lower the interest rate on your business loan as well.
NBFCs like Lendingkart are governed by Indian laws and the RBI and come under FinTech services which are especially designed for small and medium businesses. Right now, you can borrow short-term business loans up to ₹ 2 crore from Lendingkart to grow your business.
Getting small business finance in India has been a difficult thing for many years. With the traditional banking system leaning towards corporate finance, small and medium business owners often resorted to private finance or utilizing their savings for business use. However, the arrival of Internet of Things, e-commerce, business software and FinTech lending platforms like Lendingkart has made it easier for them to get quick finance with favorable interest rates and repayment terms. These services also help businesses in avoiding the risk associated with credit card finance and private lending, while making them more efficient in working capital management through cash flow control and FinTech lending services.