A major concern of businesses is low cash flow, and this is where the flexibility of bridging finance can really come into its own.
If income goes down, there are still bills to pay. Employees expect their salaries at the end of the month, rents must be paid and suppliers expect payment. Businesses need strategies to increase their cash flow, but often it can take time to increase sales. Meanwhile, the bills mount up and creditors demand payment.
Issues that cause low cash flow
There are several factors that affect cash flow. The business may be faced with high capital expenditure. Machinery and vehicles may need replacing. As technology changes, businesses need new equipment. For example, cinemas used to use film projectors to show movies. Then digital came along and film distributors stopped distributing their movies on film reels. To adapt, cinemas had to invest at least £50,000 in new digital projectors.
Sometimes, a business finds that it has too much stock. Bestselling lines may experience a drop in demand, leaving large numbers unsold on warehouse shelves.
There may be a large amount of money owed by credit account customers, or some customers may have been allowed too much credit.
Some businesses experience seasonal demand for their products. Ice cream sales peak on sweltering summer days but fall on cold winter days. Firework sellers have their peak season leading up to November 5th and then have another peak in January, with summer tending to be quieter (at least in the UK).
Of course, unexpected VAT or Corporation tax bills can arrive, and their payment deadlines can create difficulties too.
How to fix low cash flow
There are many ways to fix low cash flow. Low sales due to seasonal lulls will automatically increase when the high season arrives. Excess stock can be sold off at a discount, credit account debts can be chased up or the debts can be sold to an invoice factoring company.
Tax bills can be predicted, and better financial systems can set aside money to pay them. Money can be invested in marketing and promotion campaigns to increase sales.
No instant fixes
Most strategies to increases cash flow are not instantly effective. They take time to implement and increase cash flow. Bridging loans can provide an injection of capital into the business, and be repaid after the strategies to increase cash flow have taken their effect.
Property is normally required to secure the bridging loan, but lenders will consider other assets such as equipment and equity in the business. Bridging loans can be arranged quickly so that the money is deposited in the business’s bank as soon as possible. Money can be borrowed for up to 18 months or more.
Of course, the loan needs to be paid back. The lender will need to see evidence of how the business will increase its cash flow and when that will happen. This will form the basis of what is known as an exit strategy – a plan for how and when the loan will be repaid.
If your business is suffering from low cash flow, talk to Ascot about how bridging finance can help.