Balancing Cash Flow

(Submitted by Brad Bapst, Director, Small Business Development Center, OSU South Centers)


Maintaining a positive cash flow is critical to the daily operations of any small business. Many small businesses suffer from seasonal highs and lows in sales, thus leaving a void in their available cash assets. Many expenses still occur monthly, regardless of the volume of sales that generate revenue. The financial gap created by these low periods of sales is troubling for the business and its management.

A possible solution to solving this problem is securing a line of credit. A line of credit can be thought of as an open loan from which the business can draw funds as needed, and repay, with interest, as cash comes in. A line of credit can be in the form of a credit card which many financial institutions offer. It may also be in the form of a more formal loan from a local lending institution. Both of these forms may be quite functional depending on the business’ needs. Credit lines that are secured, or collateral based, usually have lower interest rates than those from credit cards. A line of credit is a type of loan that doesn’t give you one giant injection of funds the way a traditional loan does. Like a credit card, you draw on the credit when you need to pay for something that is financially out of reach. Unlike most credit cards, the interest rates on lines of credit are generally low, and the limits tend to be high.

Another difference from a traditional loan, a line of credit does not have a structured repayment schedule. In most cases, a monthly payment is required, typically the interest which has accrued on the outstanding balance for the month. The financial flexibility the line of credit offers makes it a very useful tool for business owners with good credit and assets in their business.