Cash Flow Strategies for SMBs: Optimize, Access Credit, and Overcome Challenges

Insights

According to a 2023 Goldman Sachs survey, over 75% of small businesses in the United States hold concerns about accessing capital to finance their operations because of high interest rates and tight lending conditions. Hearing such statistics might seem discouraging to business owners. 

However, with the right guidance and expertise, small and medium-sized business (SMB) owners can access the credit they need to create cash flow. 

In this blog, we’ll go over some of these strategies to help you grow and scale your SMB and overcome financial bottlenecks.

#1 Build Your Business Credit

When you apply for a business loan during the early stages of your SMB, lenders may use your personal credit history instead of your business’ limited financial history to determine approval. As with any other type of loan, these lenders must do their due diligence to ensure your company will repay the loan in time. 

Then, as your business grows, it uses credit over time to build a solid financial history. Lenders can reevaluate its creditworthiness before offering a loan. Ultimately, building your business credit is the ideal long-term strategy that qualifies you to access various credit financing options in the future.

While you can lean on your credit history to access financing in your SMB’s infancy, it’s still advisable to separate your personal finances from those of the business. Doing so helps establish your business as a separate entity and can fast-track your path to building strong business credit.

But first, you must register the business—if you haven’t yet. Some entrepreneurs prefer registering their business structures as corporations or Limited Liability Corporations (LLCs) so the businesses exist independently and can access business loans. 

However, other entrepreneurs keep their businesses as sole proprietorships and continue to leverage their personal credit to access financing. It all depends on the type of credit you’d like to access. Certain loans dedicated to SMBs may require business credit applications, whereas you may still be able to access smaller loan amounts using your personal credit.

When running your SMB as an LLC or corporation, registering for a Dun & Bradstreet D-U-N-S Number—a unique business identifier—allows potential lenders to look up your business using this number and evaluate its credit.

#2 Open a Business Credit Card

By opening a business line of credit, you can gradually build a credit history for your business. Business credit cards offer access to the financing you need in the near term to develop your SMB’s operations and generate cash flow. Business credit cards can help cover upfront startup costs, such as business registration fees, upfront inventory purchases, and other related expenses.

A business credit card functions just like a personal credit card, meaning lenders report a borrower’s activity to credit bureaus and may determine credit limits based on the business owner’s credit history and the SMB’s activities. Some lenders may also offer higher limits for business credit cards, providing entrepreneurs with significantly more credit than personal credit cards typically do. 

It’s always best to keep track of the expenses you put on your business credit card and confirm you can pay them off in time. Ensure you’re not worried about debt as you build your business.

#3 Find the Right Lenders

Depending on the type of SMB you’re running, traditional business credit cards may offer much less capital than you need to finance your operations. 

For example, a real estate developer looking to purchase materials to renovate several building units might need tens of thousands of dollars in capital to finish the project. This type of upfront cash may be unavailable with a business credit card, but some lenders might be willing to lend this SMB cash at low interest rates.

In these scenarios, business owners can rely on local lenders to obtain financing or search for nationwide lenders in databases provided by organizations like the Small Business Administration (SBA). However, applying for these types of loans requires SMB owners to prepare business plans that detail how they will use the finances, describe which collateral will guarantee the loan, and project how they will pay the cash over time.

And remember, it’s important to identify a lender who will meet your unique SMB needs and align with your expectations, especially if you need significant amounts of cash to finance your business. That’s where partnering with a trusted and experienced team of financial advisors comes in handy.

Partner with Trusted Financial Advisors like Tomoro

Running an SMB is challenging, to say the least. Between identifying prospective customers, developing your products or services, marketing them to these customers, and finding the financing you need to stay afloat, you need the right financial advice to stay on track and successfully grow and scale your business.

Our team of advisors at Tomoro has built significant expertise in helping individuals, families, and businesses design the right path to financial stability and, ultimately, wealth building. 

Whether you’re a business owner in the early stages of growing your business or you’ve established the SMB but feel overwhelmed making effective financial decisions, we can help guide you along the way. Besides guiding you on the best strategies to access business credit and other forms of financing, we excel at helping you generate cash flow and value and prepare your business for a successful exit.

Contact us to learn more about our services.