Remember the first time you paid all your bills and still had cash left to put into savings. Many owners see that as the moment all the blood, sweat, tears, and money they’d put into their dream just might be worth it.
And while saving money is certainly an important part of every business’s financial plan, some owners take it too far. They save money like they are greedy dragons, hoarding every dollar in a secret stash just for the sake of stockpiling. That cash can’t do anything for a growing business sitting in a bank account, especially if owners refuse to spend those reserves later.
Keep in mind that your dream is bigger than a bank account balance. When needs arise, you can use business credit options to protect your cash reserves and invest in your future.
Build a Cash Foundation
Cash is the only resource you can access immediately without asking a lender for permission. Sometimes you need that security when customers don’t pay, or when essential equipment breaks down. The key is determining when to use cash and how much to keep on hand.
When you can, pay with cash for routine operating expenses. Use it to cover expenses like payroll, rent, utilities, taxes, and equipment maintenance. That keeps your financing costs lower than if you have to borrow and pay interest. This approach also simplifies your accounting compared to borrowing for every business cost.
Cash also makes sense for smaller, predictable purchases. Office supplies or software subscriptions, for example, are typically relatively small costs and don’t generate a meaningful return. Getting financing for those kinds of expenses would be more expensive and inconvenient than paying with cash.
In general, save enough money to pay for three to six months of recurring operating expenses in an emergency. Reserves of this size provide security for your business without turning your cash into a dragon’s hoard.
Add Flexibility with Business Credit
Some business owners shy away from credit options and only pursue financing as a last resort. But once you spend your cash, it takes time to rebuild your reserves. You may drain your savings to address one emergency, only to scramble for financing to cover another unexpected disruption.
Financing some purchases, even when you have cash on hand, gives you more flexibility. Say you have enough money saved to either repair your bulldozer or pay your construction crew. Relying on cash means you have to pick one. But you can cover both if you draw on a general contractor line of credit to fund your repair and cover payroll costs with your cash reserves.
Flexibility from credit is especially valuable when you’re uncertain about timing. You may be struggling to pay your suppliers because the funds you need are currently tied up in unpaid invoices. Pulling from financing to cover your bills until your customers pay protects your relationship with your vendors and saves your cash reserves for future emergencies.
Best of all, pairing credit with a healthy cash reserve decreases your borrowing risks. You have the time to carefully compare your credit options and choose the best product and provider for your situation. And you can secure lower rates and better terms when you can prove you have the funds to back your financing.
Treating credit as a financial tool to purchase equipment, build inventory, bridge a temporary cash flow gap, or cover emergency expenses helps you stay prepared and respond to growth opportunities.
Borrow for a Purpose
Credit is a useful tool for business owners, but you don’t want to use credit for all your purchases. That approach weighs on your business and can pull you into financial trouble.
Instead, be selective when deciding which financial demands you want to tackle with credit. Your restaurant might need some extra working capital from January to April. You could take out a short-term loan to cover your expenses during the slow season and repay the loan when business picks up. Or if your landscaping company needs to purchase hundreds of plants to prepare for spring, you might charge them to a credit card until your clients pay.
Borrowing for specific purposes like these gives you a sense of when you need the funds, how much you need, and what kind of repayment schedule will work. This approach helps limit your borrowing risks and use your credit effectively.
Choose Strategic Financing Options
When you know why you are borrowing, it becomes easier to match the right product to your situation. Consider the following business credit options.
Business Lines of Credit
With this product, you have on-demand access to funds and pay interest only on what you use. You can renew how much credit you have left to draw on by making repayments on revolving lines of credit.
Business lines of credit work well for seasonal slowdowns, cash flow gaps, emergency repairs, and time-sensitive opportunities. You wouldn’t want to make all your purchases through a credit line, but drawing on the available funds can protect your cash reserves and support momentum.
Short-term Business Loans
Most owners would consider this financing a standard loan. You borrow a one-time, set amount of capital and make fixed repayments on a defined schedule. If you need to repair equipment or want to launch a marketing campaign, a short-term loan could work.
Working capital loan terms can range from three to 24 months, so the key is choosing a term length that fits your purpose and expected returns. If you expect to see increased sales six months into your new advertising campaign, consider a nine-month repayment schedule. That timeframe allows you to use the increased revenue to pay off your loan and keep your finances steady.
Merchant Cash Advances (MCAs)
A merchant cash advance (MCA) gives you a lump-sum loan in exchange for a portion of your future card sales. You’ll typically pay back a fixed percentage of your daily or weekly income until you’ve repaid the advance. This repayment style works well for businesses with recurring sales income but may not align with the cash flow for all business models.
Merchant cash advances are ideal for time-sensitive situations with immediate returns, such as taking advantage of a vendor discount to order inventory in bulk ahead of the holidays. Its revenue-based repayments also make it a solid option for businesses with seasonal or variable income.
When an MCA works for you, you can grow your business without straining your current cash flow or draining your savings.
Business Credit Cards
Business credit cards allow you to charge expenses to your account and repay later, charging you interest only when you carry a balance past the billing period. Carefully managing this product can improve your credit score and give you access to rewards.
For example, you might earn cash back or travel points by paying for software subscriptions, gas for your vehicles, project supplies, and utilities with your card. Business cash advance credit cards also offer owners the option to withdraw a lump sum, like an MCA, for larger financing needs.
You may also find a business credit card useful if you deal with timing issues. If your medical practice waits 30 to 90 days for insurance reimbursements, you may struggle to pay rent and utilities each month. You have earned enough income, but it’s not in your account yet. Putting some operating expenses on a credit card allows you to pay your bills on time and pay down the balance when the insurance companies pay.
Building a Smarter Funding Strategy
You don’t have to choose between saving all your money to pay only in cash and financing all your expenses with business credit. Cash and credit products work better together. The most effective funding strategies often involve a mix of internal resources and outside financing.
