Finance

Stabilize Your Cash Flow with Small Business Line of Credit

Stabilize Your Cash Flow with Small Business Line of Credit

Small business owners find difficulty managing their cash flow at frequent interval of times, and this is because of recurring credit demands and the gap that arises between needs of working capital and revenue realization. For a small business owner or one who has started his business recently, it becomes more difficult because he might have not yet diversified enough to generate a regular cash flow. To run the business uninterrupted, one has to ride out the cycle of cash flow between the purchase of the inventory and the time accounts receivable which have been collected.Many business proprietors were compelled to close their businesses because of this interruption of cash stream, notwithstanding, when their businesses were making cash on paper. However, small business line of credit accommodates recurring credit demands of distinctive customers of your business with the high points and low points of the cash stream. With the assistance of this financial bolster, you can also purchase inventory in expectation of future sales. There are many sorts of small businesses that have taken advantage of this kind of funding ‘til now, and many are using it to secure the eventual fate of their businesses.

The best thing about business line of credit is that it is secured. In this way, you don’t have to stress over the risk of losing your property or any business asset. Also, not all like loans in which you have to pay the interest on an irregularity the entirety amount of cash, a line of credit is more adaptable. You pay for the amount you have utilized and you are allowed to choose how great part of the cash you might want to use within a certain amount of time. You can have the small business line of credit for a more drawn out of time, and so you can stay assured of having the cash stream in your business regularly.

Then again, some of the time you may feel that a loan is important and perhaps it can save your business. Along these lines, it is important that you know how to apply for a business loan so that your loan gets approved. Providing your business profile and explaining your business and repayment plans while you ask for the business loan can help you have enhanced chances of receiving the business loan. Businesses have several sorts of credit available to them. Perhaps, the most well-known kind of business credit is a company charge card. Yet, another kind of credit is a business line of credit. Both of these sorts of credit are important for businesses to have, yet many new businesses disregard to obtain business lines of credit in spite of rushing out to get a corporate charge card. Business proprietors need to take a more intensivegander at business lines of credit on the off chance that they may want to have the purchasing force necessary to stay aware of their competitors.

Business lines of credit are available from almost all major banks. Put essentially, a business line of credit allows businesses to have open access to a predetermined amount of the bank’s cash. Obviously, the cash must be paid back with interest, yet it gives businesses the solace and assurance that they have access to finances in the occasion of sudden costs. Many business proprietors are reluctant to open business lines of credit because they don’t feel like they would qualify. However, qualifying for a business line of credit is actually less difficult than many individuals accept.

Make beyond any doubt to apply for a small business loan just when you know that you are sufficiently capable to repay the loan amount with interest on time,and give adequate and appropriate information with application.

Average Interest Rate for Small Business Loans

Average Interest Rate for Small Business Loans

Businesses often look for a loan. It could be for purchase of equipment, working capital, inventory expansion, renovations, or perhaps an acquisition. A business requires money to finance the project. Bank loans are useful but are not easy to secure. Small businesses in particular have a difficult time qualifying for bank loans because of the stringent requirements and long timelines. The downturn has also created a credit crisis that has worsened the situation further.

Some of the available small business loans are lines of credit, equipment leasing, term loans, secured or unsecured working capital loans, franchise startup loans, and SBA loans. All these loans need comprehensive documentation including review of credit history, income projections, collateral, an effective management, and a great growth plan. Additionally, businesses may have to apply to multiple lenders before they acquire a loan since the approval rates are not very bright.

There is an alternate loan option that could perhaps be perfect for your business if you detest the time and the documentation takes to obtain a traditional loan, or if you simply can’t wait around for weeks to get it approved. It is called business cash advance or merchant cash advance (MCA). It is definitely a more attractive alternative for small businesses with urgent funding needs. Many private companies, banks, and credit card processing companies offer such financing. The interest rate on MCA is higher than a bank loan, but the difference is not as much as it used to be a few years ago. The paperwork involved is pretty minimal, and the credit score… well, if it’s good, great. If not, then it will not totally ruin your chances of receiving an advance though, it may affect the amount of cash advance sanctioned. The approval cycle is short – from a few hours to only 3 days! And the cash gets transferred into your business’s bank account in a few days to a week. That’s just what makes MCA so popular – funding is available when needed the most.

The one prerequisite for the approval of an MCA application is a history of good credit card receipts during the past few months (minimum average of $3000-$5000) and an experience of not less than nine to twelve months in business. The merchant cash advance provider buys a percentage of your future credit card sales receipts for the dollar amount advance to you. The repayment is handled at the credit card processor’s end without needing the involvement of the business or the cash advance provider. This relieves the business of having to keep track of payment dates or the payments. Another wonderful aspect of an MCA is that the monthly payment varies depending on monthly credit card sales volume, and is fixed as a percentage of the same. Cash advance recipient is relieved of the stress of sending in a predetermined monthly payment since it can vary depending on monthly sales.

Since merchant cash advance is a purchase of future revenue, its providers are not regulated under financial loan laws. There is no limitation on the interest rate a cash advance provider can charge. It is best to work only with reputed providers to avoid being ripped off. Examine the contract with care to make certain that there are no hidden costs or confusing terms and conditions.

The merchant cash advance industry is slowly maturing and many larger players are making an effort to regulate it to some degree. As a result, MCA is quickly becoming a mainstream source of funding for businesses of all sizes.

All business activities come to a grinding halt when the business enterprise runs out of money. If the entrepreneur fails to pay money to the suppliers within the agreed credit period, the suppliers stop sending materials to the business. Lack of materials stops manufacturing activity. Even if the enterprise is a services business, employees have to be paid, and paid in time. Such a business enterprise also faces the risk of being sued for recovery of dues by suppliers, premises owners, employees, etc.

Business Loans are the Answer

Business loans are almost necessary to prevent such a debacle. But there are more reasons to avail business loans than merely averting such crisis. Business loans help to

a. Stay Ahead in Competition

Business enterprises spend on marketing initiatives to stay ahead of competitors. Businesses also merge or acquire other businesses for improving synergies. Such mergers and acquisitions bring down some costs. Such reduction in expenses gives the business enterprises greater flexibility in pricing their products or services competitively, effectively giving the business an edge over the competitor. Periodically, raw material suppliers also offer discounts for bulk purchases for which business enterprises are asked to pay upfront. If the business has enough cash in the banks at any point of time, these opportunities should be availed. Lower material costs help to bring down the product cost and capture larger market share. Last but not the least, business enterprises should be spending on research and development, and periodically upgrading technologies. If the business runs short of cash for day-to-day operations, it cannot spare for such long term objectives. In the process, competitor often races ahead.

b. Building Brand Image

Corporate social responsibility is not merely some charitable work done by the business. It pays rich dividends in the long run. It creates good impression about the business and establishes the business’s presence in the minds of general population at grass root levels. Having access to enough money helps to fulfill such visions.

c. Buy Assets

Business loans include larger loans that are used to buy assets and other business enterprises. These are repayable over longer period of time, but meticulous planning of business cash flows is necessary otherwise, credit scores are affected. Interest rates vary as per the business’s credit score. If the business has always honored its financial commitments, the interest rates on such loans are lower too and can be payed back quickly. Repayment over longer period lets the business enterprise repay the amount in lower value because inflation brings down the value of money over a period of time. The amount that the business enterprise pays towards loan installment remains stagnant, but the business enterprise periodically increases the product’s price. Business enterprise also saves on rent charges if it buys some premises with such large business loans. Effectively, the business enterprise is left with surpluses with such financial gearing.

Conclusion

Contrary to popular perception, quick business loans are not bad at all. Such loans increase profits in business provided that the business cash flows are planned and monitored meticulously. Business enterprise should also be realistic about future cash flows and not borrow ‘til defaulting is inevitable.

Types of Business Taxes

Types of Business Taxes

The way you have to pay tax and the type of tax to pay for your business depend on the type of business you operate. Typically, there are fivetypes of business taxes namely estimated tax, employment tax, income tax, excise tax and the self employment tax. In this article, we elucidate more about these types.

Income Tax

Apart from partnerships that file an information return, the annual income tax return has to be filed by all businesses. The organization of your business will also determine the form that you are to fill.
As you receive your income or earn through the year, you will be expected to pay tax. This kind of tax is known as federal income tax. The income tax of an employee is withheld from his or her pay. One will have to pay for an estimated tax if enough tax has not been paid or the tax has not been withheld through the year. You may be required to pay any tax due while filing for return if the estimated tax payments are not required.

Self-Employment Tax

Individuals who work for themselves will be required to pay for a medical tax and social security. The social security system is covered when you pay for the self-employment tax. The coverage consists of disability benefits, survivor benefits, retirement benefits, and hospital insurance (Medicare) benefits.

Estimated tax

If the tax being held from your self-employment income, salary, or any other income is not enough, you will be expected to pay for the estimated tax. Any other income that is not subject to withholding is also paid through the estimated tax.
There are four payment due dates obtained by dividing the year into four in which one has to make the estimated tax payment. A penalty may be charged if enough estimated tax and withholding tax payments are not done.

Employment Taxes

There are certain tax responsibilities that an employer with employees must file forms and pay for. The taxes include the federal income tax withholding, federal unemployment tax, and the social security and Medicare taxes.

Excise Tax

The excise tax applies to the following businesses and outlines how they have to pay the tax and the forms to be filled.
Form 720 has broad taxes that include environmental taxes, fuel taxes, manufacturer’s taxes on the sale or use of a variety of different articles, and communications and air transportation taxes.

Certain trucks, buses used on public highways, and truck tractors are included in the federal excise tax Form 2290. This applies to vehicles with a gross weight of 55,000 pounds or more.

The federal tax on wagering filed in Form 730 applies for businesses that wager pool or lottery, or accept wagering.

The registration of any wagering activity and payment of federal occupational tax on wagering is done in Occupational Tax and Registration Return Form 11C.