In the best of times, cash flow is a struggle for small businesses. And in a pandemic—with major supply chain disruptions and a national labor shortage—these definitely aren't the best of times for small business owners.
For many, cash flow slowed to a trickle during the early days of the pandemic in 2020. In a recent QuickBooks survey of 3,500 small business owners, 60% said they faced cash flow problems.
And as businesses are recovering, a struggling supply chain can't keep up with demand.
Now, as another unprecedented holiday shopping season approaches, many business owners are unsure how to increase seasonal staff and plan for the new year without the reserves they may have had in the past.
"When you're in a season of putting out fires left and right, it's hard to plan for the future," said Josh Denton, a consumer product manager at BOK Financial®. "For many businesses, the holiday season is the most profitable time of the year, but coming off of a time of decreased cash flow, they may not be able to prepare for it in the ways they want to this year."
For many, the pandemic also may have revealed a weakness or an opportunity to lean into another focus area of their business in the coming year.
"A business line of credit, or BLOC, can be a bridge to where business owners are trying to go," Denton said.
Like a credit card in terms of versatility, a business line of credit can be a lower cost way of obtaining funds with typically more affordable rates.
"Businesses use these because they really help with short-term cash flow," Denton explained. "If a small business makes the vast majority of its revenue in the holiday season, they've got to go through the rest of the year and stay afloat without that level of revenue."
Some small businesses use the revenue from their holiday sales to get through mid-year. "A business line of credit could serve as a bridge until that peak season," he said. "Or, it can help businesses stock up ahead of time to have inventory necessary to support the level of sales they need in the holiday season."
T.C. Alexander, a Dallas-based business banker for BOK Financial, works with small business owners to find those solutions.
"We recently had a retail client take out a line of credit to buy inventory to stock up prior to the fourth quarter, when they expected an increase in sales due to a new location opening in October," he said.
To secure a business line of credit, applicants must:
- Have been in business for a lender-specified length of time.
- Meet or exceed a minimum credit score requirement.
- Show an ability to re-pay in the allotted time.
"The funds can be used for operating expenses, remodels, payroll, capital expenditure, inventory—really anything that's beneficial to the business," Denton said.
Think big picture
For those considering a business line of credit, Denton recommends having a plan in place before applying.
"Know what you're going to use it for and when," he said.
“Think about your business and industry from a big picture perspective and try to be as forward- thinking as possible to ensure you make the best use of the funds.”- Josh Denton, consumer product manager at BOK Financial
When planning ahead, he suggests factoring in technology, innovation, consumer habits and any other variables that could impact the next few months to a year of planning and growth.
Recently, Alexander secured a business line of credit for a client that allowed the client to bring on four new employees in their consulting business.
Having the line of credit allowed the business to make payroll until its customers paid for the work the new employees had completed.
"Small business owners are such a hard-working, tenacious group of people," Alexander said. "Tools like the BLOC can just help smooth out the peaks and valleys, and help them achieve the goals they've set for themselves and their business."
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