Negative Cash Flow in a Small Business Model - A Lending Opportunity

Negative cash flow is often regarded as undesirable for small business owners, especially those in need of start up or business debt financing. However, it is important to remember that cash flow does not equal profit. It is possible to have a profitable small business with a negative cash flow. In a nutshell, if your loan payments for start up or business debt financing, owner withdrawals and other non-expense activities are taking more cash out of your business than you have profit, you can have a negative cash flow.

The same is true for the opposite situation: A small business can have a lot of cash coming in through an increase in personal or lender-financed activities and still not show a profit, because the business is not generating enough revenue.  Having negative cash flow doesn’t necessarily mean your small business won’t be approved for start up or business debt financing. Actually, negative cash flow can be an opportunity for lenders for a couple reasons:

•  It means the small business is in need of business debt financing to keep the business going. 

•  Many times negative cash flow equals outstanding accounts receivables, which can  lead to opportunities for lenders such as factoring those accounts receivables.

When there is excess cash flow, the overflow often is used to reduce business debt. On the other hand, negative cash flow can actually mean opportunity to lenders. If cash flow is negative, this means that outside funds are needed to sustain the small business, which provides lenders with a new opportunity. Please contact us for a more detailed explanation.