5 smart ways to use a business loan to improve cash flow

This article was paid for by Biz2Credit.

Any business can run into cash-flow gaps — slow seasons, delayed invoice payments or unexpected costs can throw off even the most perfectly balanced budget. In fact, half of the firms polled in the Federal Reserve Banks' 2025 Small Business Credit Survey cited cash flow as a financial challenge.

Rohit Arora co-founded Biz2Credit in 2007 to help small businesses overcome that issue by providing flexible financing options with transparent terms and fast funding. 

"One of the big challenges for most business owners is that they're so busy running their business that they don't have a lot of bandwidth to think about when or why they should borrow money," Arora said. "The biggest benefit of a business loan is that it can help you smooth out your cash flow."

Looking to shore up cash flow issues? Here are five ways a business loan can help.

While your business may bring in the lion's share of its annual revenue in just a few months, payroll, rent and other expenses continue year-round. A business loan can provide working capital needed to cover those costs until sales pick back up.

"Understanding when to borrow money is just as important as why," Arora said. "A lot of businesses that are seasonal start looking for money when they're already entering their low season, instead of borrowing when they are in their peak season."

Exploring options while sales are still strong gives you time to compare lenders, he added, and puts you in a stronger position to qualify for favorable terms.

Applicants can receive an approval decision from Biz2Credit in as little as 24 hours and get funds deposited within one business day after approval. With traditional lenders, it can take up to 30 days or longer to get approved and funded.

Retailers often have to buy inventory well before they can earn revenue from it. A toy store may need to place holiday orders in the summer, for example.

Revenue-based financing can help you meet demand and avoid losing sales when popular items sell out. Because repayments are tied to your business's sales, you can cover upfront inventory costs without tying up as much working capital. Lenders typically offer revenue-based financing equal to 50% to 200% of a company's average monthly revenue, and Biz2Credit approves amounts ranging from $25,000 to $2 million.

Before borrowing, review your profit margins, past sales and how far in advance you need to place orders. Make sure any profit from future sales will be enough to cover your financing costs — including interest and fees — even if demand falls short of your expectations.

Paying cash for renovations or a new piece of equipment can take a significant bite out of your working capital. Financing lets you spread the expense out over time while keeping more money available for daily operations. 

"If you've used a credit card to run your business, that can be very expensive short-term financing," Arora said, referring to interest rates on cards. "If you're buying a piece of equipment, you should get a cheaper, long-term loan, because the benefit you'll derive from the equipment will take more time."

The same principle can apply to other large, upfront investments, such as a major rebrand or new software system. 

When comparing loans, look at the total repayment cost, including fees, not just the monthly payment. And when looking at repayment terms, avoid ones that will outlast the usefulness of the item or service you're buying.

Paying down debt can consume a significant portion of your monthly cash flow. Of the businesses that reported applying for a loan in the Federal Reserve survey, 28% did so to pay off debt or refinance.

"Owners often get overleveraged when they are building their business, so their personal credit score goes down," Arora said. "Borrowing money on the business side to retire some of that debt could help improve their credit score."

Consolidating several high-interest balances into one business loan with a lower rate can reduce your monthly payments and free up more cash flow. However, a longer repayment term will usually increase the amount of interest you'll pay over the life of the loan, so it's best to choose the shortest term you can reasonably afford.

Expanding into a new market, launching a new product or acquiring another business can come with substantial upfront costs before they generate revenue.

A business lender can finance a golden opportunity while preserving cash for payroll, inventory and other day-to-day expenses. Forty-six percent of firms in the Federal Reserve survey said they wanted a loan to expand their offerings, pursue a new opportunity or acquire business assets.

Unlike financing one big purchase, a growth plan often involves multiple costs that can be unpredictable. A business line of credit enables you to borrow only what you need. Biz2Credit offers business lines of credit up to $500,000, well above the $250,000 limit most lending platforms have. Applicants can get prequalified in just minutes, with final borrowing decisions made in as fast as 24 hours.

When applying for a line of credit, be specific about how you'll use the funds, when you expect your strategy to begin generating revenue and how you'll make your payments if your expansion takes longer than expected.

Before borrowing, know how much you need, what you'll use it for and how the payments will fit into your financial plans. The goal is to solve a cash-flow problem — not create a new one with payments your business can't afford.

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