Small businesses are a vital part of the economy. They drive innovation, provide crucial services to communities, and generate economic growth.

Yet, the prevailing view of small businesses as a homogenous sector overlooks essential variations in their financial performance and economic contributions across cities, communities, and owners. This report offers a new synthesis of public data to understand how small firms manage their cash flow.

Access to Capital

For most businesses, access to capital is a critical component of success. For many, this capital is in the form of loans and credit lines. However, entrepreneurs can take time and effort to secure this type of financing.

That is especially true for small business owners in low-income communities. Recent bank branch closures and consolidations and an increase in costlier alternative financial services providers are making it harder for these entrepreneurs to access the funds they need.

In addition, many lenders require that a large percentage of the loan be secured by personal assets, which can be a significant barrier for small business owners with limited resources or a poor credit history. This lack of access to capital can negatively impact small business performance, especially for minority-owned businesses. As a result, the demand for a more comprehensive suite of capital financial services is growing. Small business owners can better understand cash flow to grow their businesses.

Increased Cash Flow

Increasing revenue generation and ensuring that cash flows meet expenses can improve the financial health of tens of millions of small business owners and their families. Achieving this requires careful planning, with an eye toward long-term profitability and resiliency to cyclical fluctuations.

Strategies like optimizing pricing, developing diverse product lines, and leveraging everything-as-a-service models can help small businesses generate more revenue. Implementing effective invoicing and payment tracking can improve accounts receivable management.

However, most small businesses have relatively thin cash buffers (measured as the number of days payroll and other outflows exceed inflows) and irregular cash flow patterns. This level of heterogeneity suggests that policymakers should consider incorporating cash flow considerations into their programs and policies for small businesses. Similarly, it is essential to provide small businesses with various funding options that fit their needs and goals. These include business savings accounts, money market accounts, and Certificates of Deposit.

Access to Credit Lines

Business credit lines can provide a low-cost, flexible source of short-term financing to manage expenses or capitalize on opportunities. They have much in common with business credit cards but differ from small business loans because funds aren’t disbursed upon approval, and you’re charged interest only when you borrow money.

Now, many businesses benefit from options like small business loans in the UK (or in other countries depending on the location of the operation), which can offer a more structured approach to financing larger projects or long-term investments. These loans tend to provide essential support to businesses looking to expand, invest in new equipment, or cover operational costs. Lenders typically assess various factors when determining eligibility, including company and personal business credit scores, the personal credit score of guarantors, and financial statements that show strong growth year-over-year.

Understanding the terms and fees associated with a business credit line is also essential. Generally, these include an application fee, draw fees (when you access funds), annual or monthly maintenance fees, and interest rates that may be fixed or variable. This information can help you select the best line of credit for your unique needs.

Increased Efficiency

Many small businesses are thriving, even profitable, but need more cash infusion to reach their next growth phase. Business financing can provide the money they need to expand to a new location, purchase inventory or equipment, hire employees, or cover unexpected expenses.

Capital efficiency is the ability of a business to maximize profits and reduce costs through careful planning, streamlining processes, and optimizing the use of resources. It can be achieved through debt capital, such as loans from banks and credit unions; asset-backed financing (such as invoice financing and factoring); or business credit cards.