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During an economic downturn, traditional sources of funding may be more challenging to secure. To keep your business going, you may want to look at alternative sources of capital, as well as ways to manage your cash flow effectively so that when you are in a position to apply for a loan, your business is as attractive as possible.

Here’s a look at some strategies to consider to keep your business moving ahead when the economy turns south.

Signs of an Economic Downturn

There are several indicators to watch that may signal an economic downturn.

•   Volatility: First, be on the lookout for increased volatility, which suggests that investors are more afraid. Keep your eye on the CBOE Volatility Index, or VIX. A reading above 30 suggests there’s a lot of volatility in the market.

•   Growing unemployment: The Sahm Recession Indicator is based on unemployment data published monthly by the Bureau of Labor Statistics. According to this indicator, a recession begins when the three-month moving average of the national unemployment rate increases by 0.50% relative to its low during the previous 12 months. Higher unemployment may be tied to declining demand and decreased consumer spending.

•   Inflation: A certain amount of inflation is expected and doesn’t necessarily signal an economic downturn. However, high inflation can decrease demand. What’s more, central banks will often raise interest rates to curb inflation, which can make borrowing more expensive.

•   Declining stock market: When the stock market declines 20% or more, it falls into bear market territory, which can signal a downturn.

•   GDP contraction: The country’s gross domestic product, or GDP, is a measure of its economic output. A shrinking GDP can signal an economic downturn or even a recession. In fact, some experts define a recession as two consecutive quarters with declining GDP.

How Lending Standards Change During Downturns

During an economic downturn, lenders tend to become more cautious. Banks focus on ways to reduce risk and their potential losses. Unfortunately, that can mean that it is more difficult to get a small business loan to fund operations or invest in expansion.

What’s more, in a period of high inflation, interest rates may be high, which can make traditional business loans more expensive.

Recommended: Mompreneurs: Generational Wealth and Real-Time Struggles

How to Fund Your Business During a Downturn

During an economic downturn, if funding your business through traditional methods proves challenging, there are several strategies you may consider.

1. Optimize Your Cash Flow Management

First things first, you’ll want to ensure that you are managing your current cash flow efficiently. This helps ensure you’re making the most of the resources you have and nothing is going to waste.

Ensure that you have a way of tracking cash balances, income, and spending. Send invoices out promptly, and consider offering incentives to clients who pay earlier. Take stock of your inventory and make a note of items that aren’t selling well. Stop buying these and eliminate back stock, which may mean selling at a steep discount.

Ask your suppliers if there are ways you can reduce how much you are spending with them, and consider increasing your prices if the market will support it.

2. Explore Government-Backed Loan Programs

Consider Small Business Administration (SBA) loans. These are backed by the federal government and may be easier for businesses to secure. The SBA also offers loan programs that target specific groups, such as women, veterans, and minorities.

Recommended: How to Apply for a Business Loan

3. Consider Alternative Lending Options

Consider raising capital for your business through alternative funding methods, such as revenue-based financing. This strategy allows businesses to receive capital from investors in return for a percentage of the company’s future revenue. This type of financing generally works well for companies that are already generating a steady stream of revenue.

4. Leverage Trade Credit and Vendor Financing

If your business does not have enough cash on hand to buy the goods or services it needs during an economic downturn, you may consider trade credits. This type of agreement allows you to receive goods or services from a vendor and pay for them later.

Consider vendor financing in which the vendor lends you money, which you can then use to purchase their goods and services. This type of loan may have a relatively high interest rate compared to traditional business loans. Vendor financing may involve debt financing in which a business receives goods and services at a sales price with an agreed upon interest rate. Or a business might exchange shares for the goods and services.

5. Pursue Angel Investment and Private Equity

Angel funding often comes from a private individual who invests money in a business in exchange for equity or convertible debt, which is a loan that can be converted to shares at a later date. Angel funders usually step in during the startup phase of a company, and the funding they provide may be a good stepping stone to help a new business get to a professional round of funding.

Private equity firms pool investor money and then use it to invest in companies that aren’t publicly traded. Private equity companies often invest in businesses that they expect will be sold later at a profit.

6. Explore Crowdfunding and Community Capital

You may also consider leaning on your community to help raise capital for your business. Crowdfunding platforms allow you to tap a large number of individuals near and far who may contribute small amounts of money to your business.

Other community capital options include community investment funds designed specifically to invest in local business, as well as community lending, in which lenders provide loans to local businesses.

7. Utilize Business Credit Cards Strategically

Business credit cards may offer rewards and perks as well as an easy way to track expenses. What’s more, responsible use of business credit cards can help your business build credit, which can make it easier to secure loans in the future at better rates.

That said, credit cards tend to have relatively high interest rates. If you carry a balance, the debt you rack up on them can get expensive quickly. So they are best used when you have the cash flow to pay them off each month.

Business lines of credit are another form of revolving credit you may consider, allowing you to borrow and repay up to a certain limit.

8. Implement Cost-Cutting Measures That Preserve Value

Finding ways to cut costs can help you free up cash to be used for other purposes. However, you don’t want cutting costs to turn into cutting corners and doing things that could hurt the value of your business.

Areas to consider when cutting costs include investing in energy-efficient tools, such as smart thermometers, low-flow plumbing, and LED lights. You might also consider tasks that are handled by third parties that you might be able to bring in-house, such as marketing. Consider technology that can help automate repetitive tasks, or cloud technologies that can reduce the amount of infrastructure and maintenance needed for IT management.

9. Consider Asset-Based Lending

Traditional business financing typically looks at a business’s cash flow. Yet, some companies may be eligible to borrow based on the assets they own. Asset-based lending can use a broad range of business assets, such as real estate or accounts receivable, as collateral for a loan. These assets may be seized if the loan is not repaid.

10. Explore Business Pivots and New Revenue Streams

During a downturn, customers’ needs may change quickly, and businesses that are nimble enough to change with them may capture a greater market share. For instance, you might consider offering more basic services at a lower price point to attract more customers.

Consider other cost-effective ways to gain market share, such as expanding your online presence.

Recommended: Equipment Financing

Creating Downturn-Adjusted Financial Projections

A financial forecast is a projection of your company’s future financial performance. It can help you budget, and it helps determine the value of a company. During an economic downturn, it’s important to adjust these projections. In doing so, make your assumptions more conservative. Reduce growth projections and increase your expense forecasts.

Continue to monitor economic conditions, and as they change, adjust your financial projections as needed.

Recommended: Business Loan Requirements

The Takeaway

Economic downturns do happen. Arm yourself with an understanding of the options available to you to keep your business funded—and even growing—when the economy is struggling. You will be in a strong position when the climate is more favorable for applying for a small business loan.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

How early should I secure funding before an economic downturn hits?

Economic downturns are not easy to predict. However, if you know your business will need funding and conditions are favorable now, it may make sense to secure funding as soon as possible. Take into account that some forms of funding may have significant lead times, so you’ll want to give yourself ample time.

Which industries typically have better funding access during recessions?

During downturns, companies that provide essential goods and services, such as health care companies and companies that provide consumer staples, tend to fare better. As a result, they may have better access to funding during recessions.

How can I improve my business credit score during challenging economic times?

To improve your business credit score at any time, prioritize paying your bills on time. You may also try to keep your credit utilization as low as possible.

What financial metrics do lenders focus on most during economic downturns?

Lenders will likely focus on your credit score, credit utilization, and a cash flow analysis.

Should I consider taking on investors instead of loans during a recession?

Whether or not you decide to take on investors has a lot to do with your business’s goals. Taking on investors means that you will lose a portion of your ownership and control when it comes to making decisions. It may also put pressure on your business to grow quickly. If these circumstances work for your business plan and goals, investor funding may be an option.

Photo Credit: iStock/miniseries

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SoFi receives compensation in the event you obtain a loan, financial product, or service through SoFi’s marketplace. This webpage is owned and operated by SoFi Lending Corp., licensed by the Department of Financial Protection and Innovation under the California Financing Law, license number 6054612; NMLS number 1121636. ((www.nmlsconsumeraccess.org)). This page is NOT operated by SoFi Bank. Loans, financial products, and services may not be available in all states. All loan terms, including interest rate, and Annual Percentage Rate (APR), and monthly payments shown through SoFi’s marketplace are from providers and are estimates based upon the limited information you provided and are for informational purposes only. All rates, fees, and terms are presented without guarantee and are subject to change pursuant to each provider’s discretion. The actual loan terms you receive, including APR, will depend on the provider you select, their underwriting criteria, and your personal financial factors. The loan terms and rates presented are provided by the providers and not by SoFi Lending Corp. Please review each provider’s Terms and Conditions for additional details.

*Small Business Loans: Reference to “same day funding” or “funding within 24 hours” describes a general capability of many lenders you can reach through SoFi’s marketplace. Funding or funding timing is not guaranteed. Your experience with any lender will vary based on requirements of the lender and the loan you apply for. To determine the timing of funds availability, you must inquire directly with any lender. In addition, your access to any funds from a loan may be dependent on your bank’s ability to clear a transfer and make funds available.

†Credit score impact: To check the options, terms, and/or rates you may qualify for, SoFi and/or its network providers will conduct a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the provider(s) you choose will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit. Rates may not be available from all providers.

©2025 SoFi Lending Corp. All rights reserved.

SOSMB-Q225-009

A small business loan can be an important source of capital to grow and operate a small business. Before you seek new credit, consider some strategies for boosting your loan approval chances. These actions may help you secure credit faster, with more favorable terms, and at lower interest rates.

Here’s a closer look at what lenders want to see, plus a dozen business loan approval strategies to help make your application more appealing in their eyes.

Understanding What Lenders Look For

To prepare yourself to apply for a small business loan, the first step is to get familiar with the factors that lenders look at closely. These include loan qualification criteria and “the five Cs.”

The Five Cs of Credit Assessment

The five Cs of credit assessment are a framework that many lenders use when considering small business loan approvals. The five Cs are:

•   Character: This refers to your general creditworthiness. Lenders will look at how responsible you’ve been with debt in the past and how likely you are to repay it in the future.

•   Capacity/Cash flow: Lenders want to be sure that you have sufficient income to be able to pay back your loan.

•   Capital: If you’ve invested your own money in your business, you have more incentive to see the company succeed. Lenders like to see that you have some skin in the game.

•   Conditions: The better your business is doing, the more likely you’ll have the resources to pay back your loans.

•   Collateral: Lenders will likely look for collateral that can back the loan in case you fail to repay. For some types of loans, such as equipment financing, collateral is expected. Even if it’s optional, putting up collateral — such as real estate, inventory, or accounts receivable — can be a useful loan approval strategy.

Common Business Loan Qualification Criteria

In addition to the five Cs above, there are several other criteria that lenders will take a look at when approving you for a loan or business line of credit, including:

•   Credit score: Lenders will look at your personal or business credit score to help determine your creditworthiness. Your score is based on your credit history, including factors such as on-time repayment and credit utilization.

•   Revenue: Lenders may have minimum annual or monthly revenue requirements for borrowers.

•   Years in business: The amount of time your doors have been open is a way that lenders can measure how successful your business has been. Small business loans may require that you’ve been in business for at least two years.

•   Business loan proposal: Some lenders may ask you to provide a business loan proposal outlining how you plan to use the funds you borrow — and how you expect to repay the loan.

Addressing these criteria can help boost your loan approval odds.

Recommended: How to Get a Small Business Loan in 6 Steps

12 Strategies to Help Your Business Qualify for a Loan

With the above criteria in mind, several loan approval tips may improve your standing when it comes to securing a small business loan.

1. Strengthen Your Cash Flow Management

Lenders want to know that you have enough cash coming in to repay your loan. Strengthen your cash flow management by streamlining your invoicing, managing inventory efficiently, and implementing cash flow forecasting.

Forecast your cash flow by estimating how much money you think you’ll spend over the coming months, as well as your expected income.

Always send invoices on time and consider adding incentives for companies to pay early. Take stock of your inventory, especially items that don’t move quickly. Consider whether it makes sense to continue carrying them.

2. Improve Your Business Credit Score

Your business credit score is a numerical assessment of your creditworthiness. Within the Paydex scoring system, a score of 80 to 100 is considered strong. For FICO, anything above 700 is regarded as strong. You can improve your score by paying bills on time and maintaining a low credit utilization rate.

If your business is new and hasn’t established credit yet, lenders considering you for a startup business loan may want to look at your personal score. You can improve your personal score by paying bills on time and repaying outstanding debts.

3. Organize and Optimize Financial Records

Your financial records provide lenders with insights into how your business operates. Keep financial records up-to-date and accurate, including financial statements, bank statements, and tax returns. Maintain a balance sheet that helps you account for costs and keep track of assets, liabilities, and equity.

4. Reduce Your Debt-to-Income Ratio

Your debt-to-income (DTI) ratio compares your monthly debt payments with your gross monthly income, aka your pretax income. The higher your DTI, the more money you’re dedicating to debt repayment.

High DTIs may make lenders nervous. They may fear you are overextended and lack the resources to take on more debt. Lowering DTI by paying off existing debts can make you more appealing as a borrower.

5. Increase Business Profitability

Growth is one way to increase the profitability of your business; another is to trim unnecessary expenses. For example, consider cutting back on unnecessary travel, office supplies, entertainment, and food. Carefully evaluate your inventory and liquidate items that aren’t selling well. Consider ways you can cut back on utilities, such as smart thermostats or more energy-efficient lighting.

You may also be able to negotiate for better pricing with your vendors, who are often happy to work with customers to maintain loyalty.

6. Develop a Robust Business Plan

A business plan explains how your business will operate, who your target demographic is, how you plan to make money, and what sets you apart from the competition.

An effective business plan includes these common elements:

•   Executive summary

•   Company description

•   Products and services

•   Market analysis

•   SWOT analysis (strengths, weaknesses, opportunities, and threats)

•   Marketing and sales strategy

•   Financial analysis

7. Build a Stronger Management Team

Lenders want to be sure that the funds they offer won’t be mismanaged. Build a strong management team with the skills and expertise needed to succeed in your field. When applying for a loan, consider augmenting your business plan with descriptions of your team members’ business experience.

8. Expand Your Business Collateral

Using valuable assets as collateral can help you qualify for a loan because collateral typically helps lenders reduce their risk. Traditional business assets might include real estate or equipment. To increase your eligibility, consider expanding your collateral options to include personal assets or personal guarantees.

9. Establish Banking Relationships Early

A longstanding relationship with a bank can help you secure credit when you need it. Begin building this relationship as early as you can, as you get your business off the ground. Doing so may pay off later, when you need to secure funding, friendly bankers may be able to pass along some loan approval tips.

10. Improve Operational Efficiency

Operational efficiency means optimizing how you use your resources—including time, money, and employees—to maximize your ability to produce goods and services while minimizing waste.

To improve operational efficiency, consider ways to streamline your workflows. For example, you might automate standard repetitive tasks such as invoicing or data entry.

11. Diversify Revenue Streams

Diversifying your revenue streams helps ensure that you are not reliant on just one source of income, which could leave you vulnerable to market fluctuations. Having diverse sources of revenue can also work to make cash flow more predictable.

Common ways to diversify include offering new goods or services or expanding into different markets. For instance, your business might offer items for sale online in addition to its brick-and-mortar location.

12. Prepare a Compelling Loan Application Package

Make it easy on yourself and your lenders by pulling together a comprehensive loan application package. That way, all the information your lenders will need will be in one place, and you’ll be prepared to answer any questions they may have. Before applying, you may want to ask your lender what their business loan requirements are.

Gathering Required Documentation

The documents you’ll need when applying for a business loan likely include:

•   Business plan/loan proposal

•   Business license and registration

•   Legal documents, such as a commercial lease or contracts with vendors

•   Financial documents, including financial statements, bank statements, income and cash flow, debts, and valuation of collateral.

Recommended: Comparing LLC Business Loans

The Takeaway

A small business loan can be just the tool you need to take your business to the next level. To help ensure you are able to secure the credit you need, get prepared. This means organizing your financial and business documents and bolstering your credit wherever you can.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

What do lenders look for when approving a business loan?

When approving a business loan, lenders will consider your creditworthiness, your capacity to pay back a loan, whether you’ve invested personal capital, what condition your business is in, and whether you can back the loan with collateral.

How can I improve my chances of getting approved for a business loan?

Improve your chances of getting approved for a loan by boosting your credit score, keeping your debt-to-income ratio low, organizing your financial records, and presenting a strong business plan.

Does my personal credit score affect my business loan application?

If your business is new and has not built credit yet, your lender may consider your personal credit score instead.

How long should my business operate before applying for a loan?

Lenders typically require that you’ve been in business for two years before you apply for a business loan.

What financial documents are needed to apply for a business loan?

The financial documents you’ll need to apply for a business loan may include financial statements, bank statements, income and cash flow records, debt agreements, and valuation of collateral.

Photo credit: iStock/miniseries

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SoFi receives compensation in the event you obtain a loan, financial product, or service through SoFi’s marketplace. This webpage is owned and operated by SoFi Lending Corp., licensed by the Department of Financial Protection and Innovation under the California Financing Law, license number 6054612; NMLS number 1121636. ((www.nmlsconsumeraccess.org)). This page is NOT operated by SoFi Bank. Loans, financial products, and services may not be available in all states. All loan terms, including interest rate, and Annual Percentage Rate (APR), and monthly payments shown through SoFi’s marketplace are from providers and are estimates based upon the limited information you provided and are for informational purposes only. All rates, fees, and terms are presented without guarantee and are subject to change pursuant to each provider’s discretion. The actual loan terms you receive, including APR, will depend on the provider you select, their underwriting criteria, and your personal financial factors. The loan terms and rates presented are provided by the providers and not by SoFi Lending Corp. Please review each provider’s Terms and Conditions for additional details.

*Small Business Loans: Reference to “same day funding” or “funding within 24 hours” describes a general capability of many lenders you can reach through SoFi’s marketplace. Funding or funding timing is not guaranteed. Your experience with any lender will vary based on requirements of the lender and the loan you apply for. To determine the timing of funds availability, you must inquire directly with any lender. In addition, your access to any funds from a loan may be dependent on your bank’s ability to clear a transfer and make funds available.

†Credit score impact: To check the options, terms, and/or rates you may qualify for, SoFi and/or its network providers will conduct a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the provider(s) you choose will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit. Rates may not be available from all providers.

©2025 SoFi Lending Corp. All rights reserved.

SOSMB-Q225-010

Managing a healthy cash flow is vital to the success of any small business. It means you can smoothly manage your daily operating expenses while maintaining a level of stability and trust with employees and vendors. When you’re ready for the next stage of growth, demonstrating cash flow is also an important criteria reviewed by lenders.

Wondering how to improve cash flow for your company? Here’s an overview of the concept, plus 10 strategies you can implement for better business cash management.

Why Cash Flow Matters to Lenders

Cash flow measures liquidity by tracking how money moves in and out of a business. It’s also an important part of any small business loan application.

Cash Flow as a Debt Service Indicator

Lenders look at cash flow in order to determine if your business has the ability to repay existing and new debt obligations. They want to make sure that the business’s cash management practices give it enough financial stability to manage the company’s operations and debt payments. Lenders use cash flow as one of the criteria for approving a loan and a basis for details such as interest rate and repayment term.

How Lenders Evaluate Your Cash Flow Statements

Lenders can calculate cash flow starting with one of two metrics: earnings before interest, taxes, depreciation, and amortization (generally known as EBITDA) or revenue.

From there, the lender subtracts relevant operating expenses (such as vendor payments and payroll) and capital expenditures. They’ll also account for the debt payments you would make for the new loan you’re requesting. All of this information helps the lender determine how much risk they’ll take on by approving the loan or business line of credit.

10 Effective Strategies to Improve Business Cash Flow

Whether you’re planning to apply for a loan or simply want to strengthen your company’s financials, these 10 steps can help you increase cash flow.

1. Accelerate Your Accounts Receivable

One of the easiest ways to improve cash flow is to focus on how quickly your accounts receivable are paid. Once you’ve calculated cash flow and analyzed billing schedules, you may see ways to speed up customer payments through incentives or policy changes.

For instance, you could require upfront deposits, regardless of whether your company is service-based or inventory-based. This reduces the risk of late payments by ensuring some cash arrives before your business provides any client services or delivers any goods.

Another option is to offer early payment discounts. A common discount is 2/10, net/30. That means an invoice is due in 30 days, but the client will get 2% off if they pay within 10.

2. Optimize Your Invoicing Process

Remove as much friction as possible from the invoice process in order to get funds in hand sooner. Create a clear invoice template with all the information your customers need. For an even easier process, use invoicing software that automates payment reminders. This can incentivize faster payment while reducing the follow-up burden on your accounting team.

Also, embed digital payment options into your online invoices. Instead of customers sending a paper check via snail mail, you’ll encourage them to pay fast using a credit card or ACH payment.

3. Manage Inventory Strategically

Better inventory management can also be a way to increase cash flow. Unsold goods can hurt your bottom line and slow your company’s growth. Consider keeping less inventory on hand, especially items that you know tend to sit longer.

Digging into your historical data or even incorporating demand-forecasting software can help create a better inventory flow. You can fine-tune your list of best-selling products and quickly determine your inventory turnover ratio. You may even discover some areas where you’re ordering too much, and some items that are more in demand than expected. Ultimately, better inventory management leads to better cash flow management.

4. Negotiate Better Terms with Suppliers

Negotiating with vendors is an overlooked way to improve cash flow. But don’t go into the conversation looking to play hardball. Instead, the U.S. Chamber of Commerce recommends you consider what a favorable compromise might look like for both parties.

Research how current economic conditions may be affecting your vendor’s business to get a sense of what their priorities may be. Can they handle faster shipping times? Offer discounts for bulk ordering? Figure out a set of options to work with, rather than a rigorous set of demands.

5. Reduce Operating Expenses

In addition to reworking your vendor contracts, look for other ways to reduce operating expenses. Here’s a basic list to inspire your cost-cutting measures.

•   Downsize office space (especially if you have remote employees)

•   Bundle insurance policies

•   Outsource work to free up executive time for strategy and sales

•   Review (and eliminate) subscription costs

•   Look for automation opportunities

•   Take advantage of early payment discounts

6. Implement Digital Cash Flow Tools

You don’t have to guess at the health of your company’s cash flow. Instead, use cash flow forecasting software to find out exactly where the money is going and when. Knowing this can help you effectively plan for upcoming financing opportunities. You may even discover you want to apply for a cash flow loan.

Digital cash flow tools may help your business manage its finances more effectively during a specific period, too. You can test different scenarios to see how they would impact company financials, such as borrowing different amounts from a business line of credit.

Recommended: Equipment financing

7. Adjust Your Pricing Strategy

Making some updates to your pricing strategy could also help you bring in cash more quickly. One option is to offer bundled services or goods: Provide a slight discount when customers make a larger upfront purchase. Alternatively, you might try dynamic pricing, in which you adjust prices based on demand. Prices go up when sales are high, then drop again when things slow down.

8. Diversify Revenue Streams

Bringing in more revenue automatically means better cash flow. Encourage your team to come up with creative ideas for generating new revenue streams.

If your business is a service provider, consider upselling clients with related services you previously didn’t offer. Or create a digital product that can augment your existing services.

For product-based businesses, consider a subscription-based option for recurring revenue. Or ramp up your email marketing with better abandoned-cart outreach, discount codes, and product recommendations.

9. Build Cash Reserves

Creating a cash flow buffer can provide an extra security net for your business. If you’re just starting to build your cash reserves, aim to accrue three to six months’ worth of expenses. Look at previous cash flow statements to figure out what that amount should be; remember to account for all of your operating expenses, including payroll, rent, vendor payments, and other bills.

Recommended: Startup business loans

10. Prepare Strong Cash Flow Documentation

Make a cash flow statement to document the funds moving in and out of your business accounts. This is helpful for making internal decisions as well as applying for external financing.

Cash flow documentation typically covers a set period of time, such as a month, quarter, or year. It includes the following information:

•   Operating activities (including depreciation, amortization, and changes in working capital, among other elements)

•   Investment activities

•   Financing activities

The Takeaway

Improving your cash flow sets up your business for success both in the short term and the long term. You’ll get a better sense of what aspects of your business are going well and where you might need to readjust your strategy. Plus, if you ever need lender-based financing, a strong cash flow can help you qualify for better rates and terms.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

What is cash flow, and why is it important for a business?

Cash flow refers to the amount of money going into and out of a business during a certain period of time. It’s important because it’s one indicator of your company’s financial health. A strong cash flow means there is plenty of money to cover your expenses, while a weak cash flow reveals that there is little to no financial buffer.

What are the most effective ways to improve cash flow quickly?

The two most effective ways to improve cash flow fast are to speed up your accounts receivable and cut back on costs.

How can I manage cash flow during slow sales periods?

When sales are slow, consider cutting non-essential spending. You can also try renegotiating contract terms with your vendors.

What tools can help track and forecast business cash flow?

It depends on the size and complexity of your business. Microbusinesses with minimal employees can use a spreadsheet, while more complex companies may do well to invest in cash flow management software.

Should I cut expenses or increase revenue to improve cash flow?

Ideally, you would do both. Cutting expenses may be preferable as a first step, since you can take that action right away if need be. Increasing revenue is likely to take longer.

Photo credit: iStock/miniseries

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SoFi receives compensation in the event you obtain a loan, financial product, or service through SoFi’s marketplace. This webpage is owned and operated by SoFi Lending Corp., licensed by the Department of Financial Protection and Innovation under the California Financing Law, license number 6054612; NMLS number 1121636. ((www.nmlsconsumeraccess.org)). This page is NOT operated by SoFi Bank. Loans, financial products, and services may not be available in all states. All loan terms, including interest rate, and Annual Percentage Rate (APR), and monthly payments shown through SoFi’s marketplace are from providers and are estimates based upon the limited information you provided and are for informational purposes only. All rates, fees, and terms are presented without guarantee and are subject to change pursuant to each provider’s discretion. The actual loan terms you receive, including APR, will depend on the provider you select, their underwriting criteria, and your personal financial factors. The loan terms and rates presented are provided by the providers and not by SoFi Lending Corp. Please review each provider’s Terms and Conditions for additional details.

*Small Business Loans: Reference to “same day funding” or “funding within 24 hours” describes a general capability of many lenders you can reach through SoFi’s marketplace. Funding or funding timing is not guaranteed. Your experience with any lender will vary based on requirements of the lender and the loan you apply for. To determine the timing of funds availability, you must inquire directly with any lender. In addition, your access to any funds from a loan may be dependent on your bank’s ability to clear a transfer and make funds available.

†Credit score impact: To check the options, terms, and/or rates you may qualify for, SoFi and/or its network providers will conduct a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the provider(s) you choose will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit. Rates may not be available from all providers.

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