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Cash flow disruptions can happen to the best-run small businesses, and it’s smart to have a financial plan to weather these times. Small business cash flow loans offer the opportunity to bridge the revenue gap when you’re waiting for invoices to be paid or for other types of funds to come in.

What Is a Cash Flow Loan?

A cash flow loan is a type of financing that allows you to borrow against future revenue. It can be structured in a number of different ways to suit your needs and your business model.

Traditional banks typically focus on eligibility criteria when approving small businesses for loans, such as credit, time in business, and financials. These things may still be considered by a cash flow lender, but not to the same extent that they would be for a more traditional business loan.

Instead, for a cash flow loan, lenders typically judge your ability to repay the loan based on revenue projections. Depending on the financing structure, your loan payments could be based on a percentage of future credit card transactions or your unpaid invoices. Alternatively, you might apply for a business line of credit to help with cash flow or a small business loan with a fixed repayment term.

Recommended: Personal Loan Alternatives

How Do Cash Flow Loans Work?

There are several types of cash flow loans, each of which comes with its own structure for receiving funds and repaying them.

Overall, small business loan rates are usually more expensive for this kind of financing than for other types of small business loans (like SBA loans). But the eligibility requirements are usually more relaxed.

Different Types of Cash Flow Loans

Some of the most common types of cash flow loans include:

•   Online Loans: It’s possible to find online business loans for small businesses that offer help with cash flow. With these loans, typically you’ll receive a lump sum and then make payments on a regular basis. You can find online loans with terms lasting just a few months up to several years, depending on the lender.

•   Merchant Cash Advance: A merchant cash advance lets businesses borrow a sum of cash based on projected credit card transactions. You’re charged a factor rate instead of interest, which is combined with the amount you borrowed to calculate your total debt. Payments are then automatically deducted as a percentage of your credit card sales. In some cases, payments can also be automatically deducted from a business bank account on a fixed schedule.

•   Invoice Factoring: Invoice factoring advances a portion of a company’s unpaid client invoices. Depending on your industry, you might receive anywhere up to 90% of the outstanding invoice amounts. In many cases, the factoring company then takes over the collection process. Once the invoices are paid, you receive the remaining balances, minus the lender’s fees.

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What Is Asset-Based Business Lending?

Asset-based lending is any type of financing that uses property as collateral to secure the loan. Examples of the kinds of assets that might be used include equipment, inventory, invoices, and real estate.

Because the loan is backed by collateral, interest rates and terms are typically more favorable. Small businesses struggling with credit or revenue may also have an easier time qualifying for this type of financing because it’s less risky to the lender. If you aren’t able to pay back the loan, the lender is able to seize your collateral.

How Can a Cash Flow Loan Be Used?

Funds borrowed through a cash flow loan are typically used for ongoing operating expenses, such as:

•   Payroll

•   Inventory

•   Rent

•   Marketing

•   Insurance

Different lenders may have their own guidelines on how the funds may (or may not) be used.

How to Find a Cash Flow Loan

Once you understand the types of cash flow loans for small businesses, narrow down your choices to the ones that make sense for your business model.

For instance, merchant cash advances are designed for companies with regular credit or debit card transactions.

Invoice factoring, on the other hand, is suited for companies that regularly invoice customers.
A cash flow loan or line of credit usually suits a broad range of business types.
You can use a lender platform to access multiple loan offers and find the one that suits your company.

Also, you may want to consider exploring other funding opportunities, such as small business grants, which don’t have to be repaid.

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Cash Flow vs. Asset-Based Loans

Although asset-based loans may be used for some of the same purposes as cash flow loans, they’re not the same. This table helps summarize some of the similarities and differences.

Loan Process

The biggest difference between cash flow and asset-based loans is what the lender focuses on when reviewing your application (cash flow versus assets that will be used as collateral).

For both types of financing, you typically don’t have to worry about meeting the definition of a small business the way you would with an SBA loan. Lenders can create their own eligibility criteria rather than adhering to SBA requirements.

Processing Time for the Loan

Processing time varies by lender, but both types of loans typically feature fast funding times. This is especially true if you apply with an online lender.

Collateral for the Loan

Cash flow loans generally don’t require collateral beyond the projections for the revenue that will be used to repay the loan.

Asset-based loans, on the other hand, require some type of collateral to secure the loan. These assets could be in the form of inventory, equipment, or real estate.

Repayment of the Loan

Repayment depends on the structure of the loan.

Asset-based loans usually have a fixed repayment schedule, while cash flow loans are likely to rely on your future revenue in some way. Oftentimes, you’re required to enroll in some type of automatic payment linked to your business bank account or point of sale system if you’re using a merchant cash advance.

Can You Get a Cash Flow Loan with Bad Credit?

Cash flow loans are primarily based on sales performance and projections. Potential lenders typically review your company’s transactions and other data, as opposed to your credit score and business history, to determine your ability to repay the loan. Each lender differs in terms of how much it weighs both business and personal credit scores.

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The Takeaway

If your company has a good revenue history, a cash flow loan could be an option when your business needs help covering operating expenses. As you weigh the pros and cons, you can search for small business loan offers to see what is available.

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 are the different kinds of cash flow loans?

Cash flow loans may include term loans, lines of credit, merchant cash advances, and invoice factoring. Each one has its own pros and cons, as well as its distinct requirements based on how your business brings in income.

In what situations is a cash flow loan the best option?

A cash flow loan is ideal for businesses that don’t qualify for traditional bank or SBA loans. But interest rates and fees for a cash flow loan are typically higher, and this type of financing doesn’t always help build your business credit history. It’s important to explore all of your options and feel comfortable about your company’s ability to repay the loan.

Who qualifies for a cash flow loan?

Compared to a startup, a company with a history of revenue is better positioned to get approved for a cash flow loan for small businesses. Your company typically needs a history of revenue in order to demonstrate your ability to repay the loan based on future sales.

Can I get a cash flow loan with bad credit?

Credit history is weighed less heavily than your revenue data when you’re applying for a cash flow loan. That doesn’t mean your business and personal credit scores aren’t reviewed at all, but it does mean you could still potentially get approved even with bad credit.

Photo credit: iStock/AsiaVision

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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North Carolina has about 964,000 small business owners who can apply for small business grants. Submitting an application and competing for N.C. small business grants can help you grow your small or medium-size enterprise in the Tar Heel State.

North Carolina’s economy has a gross domestic product of $771 billion as of the 3rd quarter of 2023. That’s the 10th largest GDP in the United States out of the 50 states and the District of Columbia.

Learn more about some of the top small business grants in N.C. that you can explore.

Grants for Small Businesses in NC

If you’re looking for small business grants in North Carolina, here are some potential options:

Job Development Investment Grant (JDIG)

•   Program description: The JDIG program provides cash grants to companies that create new jobs filled by full-time employees who work on a project in North Carolina.

•   Incentive: Receive annual grant payments for up to 12 years based on performance factors. Grant awards will generally represent a fixed percentage of withholdings from the wages of employees in eligible positions.

•   General requirements: Here are some of the general requirements for this grant:

◦   Be a business that creates a minimum number of eligible positions in North Carolina ranging from 10 to 50 new employees depending on your development tier area

◦   Develop an eligible project (projects that consist solely of retail facilities are not eligible)

◦   Provide health insurance for all of the applicable full-time employees of the project

◦   Have no citations under the Occupational Safety and Health Act that have become a final order within the past three years for willful serious violations or failing to abate serious violations

•   How to apply: Contact the Economic Development Partnership of North Carolina Inc. if you are interested in applying for the Job Development Investment Grant .

One North Carolina Small Business Program Fund

•   Program description: This One North Carolina Fund provides grant funding to businesses that stimulate economic activity in the Tar Heel State, including small business owners who develop and commercialize new technologies.

•   Incentive: Receive up to $200K in state matching funds for receiving a federal Small Business Innovation Research (SBIR) or Small Business Technology Transfer (STTR) award. Small businesses can also receive up to $12K in reimbursement for costs incurred in preparing a federal SBIR/STTR proposal.

•   General requirements: Here are some of the requirements if you’re seeking state funds toward a federal SBIR/STTR project:

◦   Be an N.C.-based small business

◦   Submit a qualified SBIR or STTR Phase I proposal to a participating federal agency

◦   Meet all federal SBIR/STTR program eligibility requirements

◦   At least 51% of the SBIR/STTR proposal development and operations must take place in North Carolina

•   How to apply: You can apply for One North Carolina Small Business Program funds online when the application opens.

On-The-Job Training (OJT) Program

•   Program description: The OJT program can provide partial reimbursement to employers who hire and train new employees who work in skilled positions.

•   Incentive: Participating employers can receive reimbursements ranging from 50% to 75% of a trainee’s wages.

•   General requirements: Here are some of the general requirements for this grant:

◦   Be registered or licensed to do business in North Carolina

◦   Have a bona fide job vacancy or workforce expansion plan

◦   Be in compliance with all applicable licensing, taxation, and insurance requirements and not in violation of any local, state, or federal labor laws

◦   Have no history of frequent layoffs and no current labor disputes

◦   Agree to retain your OJT trainees who complete individualized training plans

•   How to apply: Anyone interested in the OJT program can contact the NCWorks Career Center, state Division of Workforce Solutions (DWS), or a local N.C. Workforce Development Board (WDB).

Incumbent Worker Training (IWT) Grant Program

•   Program description: IWT is a competitive training grant program that provides eligible employers with monetary awards for upgrading the skills and knowledge of their existing workers.

•   Incentive: Businesses can receive up to $25K per program year ($100K lifetime maximum) for training existing staff to learn new skills.

•   General requirements: Here are some of the general requirements for this grant:

◦   Be an N.C. business in operation for at least one year

◦   Have an employer-employee relationship with your trainees

◦   Have at least five employees

◦   Provide training to eligible incumbent workers with at least six months of employment history at your company

◦   Be current on all federal and state obligations

◦   Be financially viable

◦   Employers in the health care, information technology, construction, and advanced manufacturing industries can receive special consideration for a grant award

•   How to apply: Contact your local WDB to apply for the IWT grant .

North Carolina Passport to Export Grant Program

•   Program description: N.C. Passport to Export is North Carolina’s State Trade Expansion Program (STEP) that can help you export your goods and services from the Tar Heel State to foreign markets.

•   Incentive: Receive up to $16K in reimbursements for eligible business expenses, including international marketing and booth costs of exhibiting at a qualifying trade show.

•   General requirements: Here are some of the general requirements for this grant:

◦   Be registered to do business in North Carolina

◦   Have 500 or fewer employees

◦   Have at least one year of business experience

◦   Be an export-ready U.S. company

◦   Have a product or service consisting of at least 51% U.S. content

◦   Be in good standing with the federal government (have not been debarred)

◦   Ability to bear the costs associated with trade

◦   Operating profitably as a U.S. business

•   How to apply: Contact the Economic Development Partnership of North Carolina Inc. if you wish to apply for N.C. Passport to Export STEP grant funding.

Who Provides Small Business Grants in North Carolina?

The N.C. Department of Commerce and Economic Development Partnership of North Carolina offer a variety of small business grants in North Carolina.

Do You Have to Pay Back a Small Business Grant?

A small business grant typically comes with terms and conditions, and you may be responsible for paying back the grant if you violate those terms. In general, small and midsized business owners are not required to pay back an SMB grant absent any violations.

You typically have to sign a funding agreement to accept a small business grant. As mentioned above, the grant may come with certain conditions. Using the grant for an illegitimate purpose may violate the agreement and require business owners to pay back the grant.

Small business grants may require you to spend the money by a certain date. You may also have to provide proof of payment and a written statement detailing how you’ve spent the grant.

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Who Is Eligible for Small Business Grants in North Carolina?

Local business owners or operators of an enterprise with fewer than 500 employees may be eligible for small business grants in North Carolina.

The U.S. Small Business Administration’s Office of Advocacy generally defines a small business as an independent business having fewer than 500 employees. A small business, including individuals with freelancing business ideas, may be eligible for small business grants.

What Industries Does NC Support With Grants?

North Carolina offers a variety of grants supporting the following industries:

•   Advanced manufacturing

•   Aerospace

•   Biotechnology

•   Construction

•   Health care

•   Hospitality

•   Information technology

NC Resources for SMB Owners Looking for Funding

Here are some resources for small and medium-sized businesses looking for funding in the Tar Heel State:

NC Small Business and Technology Development Center (SBTDC)

The North Carolina SBTDC is a statewide program affiliated with the University of North Carolina System that provides N.C. small business owners with the following services:

•   Educational events

•   Export-related guidance

•   General business counseling

•   Market research

•   Online training

•   Technology development and commercialization assistance

SBA District Office in North Carolina

The U.S. Small Business Administration (SBA) is a federal agency that provides resources and support to small business owners. The SBA North Carolina District Office serves the entire Tar Heel State with a main office in Charlotte, satellite office in Raleigh, plus virtual offices in Asheville and Wilmington.

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Alternative Funding Sources for Small Businesses in NC

Here are some alternative funding sources for small businesses in North Carolina:

North Carolina State Small Business Credit Initiative (SSBCI)

North Carolina’s SSBCI is a federally funded program for small business owners in the Tar Heel State. Federal law — the American Rescue Plan Act of 2021 — allocates about $201.9 million to North Carolina’s State Small Business Credit Initiative program.

Here’s how North Carolina plans to use the SSBCI funding:

•   NC Loan Participation Program — $160 million. This program uses SSBCI funds alongside private funds to support loans to eligible borrowers, including socially or economically disadvantaged individuals who own small businesses in North Carolina.

•   NC Venture Capital Program — $31.9 million. This program can help eligible startups access venture capital.

•   NC Capital Access Program — $10 million. This program uses SSBCI matching funds to support portfolio insurance on small business loans.

NC Microloan Lenders

Community-based nonprofits may offer microloans of up to $50,000 to small business owners in North Carolina, including microloans for women-owned small businesses. In general, microloans can range from $500 to $50K and may be available to startups.

North Carolina SMB Loans from Private Lenders

Banks, credit unions, and private lenders may offer different types of small business loans to N.C. business owners.

Here are some of the funding products you may consider depending on your needs:

•   Commercial real estate loans

•   Equipment financing

•   Small business loans for startups

•   Working capital lines of credit

The Takeaway

North Carolina small businesses can take advantage of all sorts of grants, ranging from those from state or local governments to private sources.

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 do you get a small business grant in North Carolina?

You can apply for N.C. small business grants, but there’s no guarantee you’ll get approved for one. You may have to submit a grant application as a qualified small business owner to be considered for a small business grant in North Carolina.

How hard is it to get a business loan in North Carolina?

You may have difficulty getting a small business loan in North Carolina if you have bad credit or insufficient business experience. You generally have to pay back business loans with interest.

What is the easiest SBA loan to get approved for?

There’s no guarantee you’ll get approved for any SBA loan, but SBA microloans may be one of the easier ones to get if you’re a new business owner. Startups may be eligible for SBA microloans of up to $50K. If you’re looking for a streamlined application process, SBA Express working capital loans are an option you may consider.

Photo credit: iStock/Yagi-Studio

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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.

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One of the most common types of financial statements used by businesses is the income statement. Also known as a profit and loss statement, an income statement shows a company’s income and expenditures and whether that company is making a profit or loss for a given period.

There is more than one type of income statement, but the one most widely used by businesses, and accepted by the Generally Accepted Accounting Principles (GAAP), is the traditional income statement.

Here’s what you need to know about traditional income statements, including an example of a traditional format income statement, plus how these statements differ from contribution margin income statements.

What Are Traditional Income Statements?

Traditional income statements record both the income and expenses of a business and show how profitable a business was during a particular period, such as a month, quarter, or year. Because a traditional income statement captures all the costs associated with manufacturing a product (both fixed and variable), it’s sometimes referred to as the absorption costing income statement.

The income statement is one of the three most important financial statements in financial accounting, along with the balance sheet and the cash flow statement.

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Calculating the Components of Traditional Income Statements

Here’s a look at the common components included in a traditional income statement.

Sales Revenue

The first section of the income statement provides a summary of the company’s gross sales. In some cases, revenue may be divided into two types — operating revenue (the revenue gained by a company’s primary activities) and nonoperating revenue (the revenue gained from non-core business activities).

Cost of Goods Sold

Commonly referred to as COGS, this is how much it cost to produce all the goods or services that were sold during the reporting period. If a company is a service business, this might be referred to as Cost of Sales.

COGS only includes the cost of items actually sold and only direct costs (such as raw materials, labor, and shipping). It doesn’t include indirect costs, such as overhead. This number may fluctuate each period, depending on how many units were sold.

Gross Profit

Gross profit is calculated by subtracting total COGS from total sales revenue. This is the amount left over after the costs for manufacturing the products have been paid. However, gross profit does not include general overhead expenses.

Selling, General, & Administrative Expenses

Also referred to as “general expenses” or “operating expenses,” selling, general and administrative (SG&A) expenses are expenses the business incurs outside of the costs directly involved in developing its products or services. This may include marketing, advertising, rent, utilities, sales, and accounting. These expenses act as a separate line item from COGS on the traditional income statement.

Operating Income

Once you calculate gross profit, you can subtract those SG&A expenses to calculate operating income. This is the amount the business has available in working capital once all expenses are paid. Operating income tells you how much your business made after subtracting all internal costs (which are costs you can control) but before covering external expenses, such as interest on loans and taxes (which you have less control over).

Interest Expense

This includes the total amount of interest a business pays on any debt, such as different types of small business loans.

Earnings Before Income Tax

This is the business’s profitability before it pays its taxes.

Income Tax Expense

This is how much the business paid in income taxes during the accounting period.

Net Profit

Also known as a company’s “bottom line,” net profit is the total profit a business has earned after subtracting total expenses from total revenue.

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Pros and Cons of Using Traditional Income Statements

So should your company use a traditional income statement? Here’s a look at some of the pros and cons of preparing this type of financial statement as part of your business cash management.

Traditional Income Statements vs Contribution Income Statements

Another type of income statement is the contribution (or contribution margin) income statement.

While there are similarities between these two types of financial statements, there are also some key differences.The traditional and contribution margin income statements both provide information about a company’s revenues, expenses, and profits (or losses) for a defined period. For both, the top line is revenue and the bottom line is net income. Where they differ is how they arrive at that bottom line.

A traditional income statement separates costs by production/manufacturing costs (both variable and fixed) and period/overhead costs. The contribution margin income statement, on the other hand, separates costs into variable and fixed. Fixed manufacturing costs are considered part of overhead costs and, as a result, are not included in production costs.

Also, a contribution margin income statement deducts variable expenses from sales to arrive at a “contribution margin.” A contribution margin is essentially how much of a company’s revenues are contributing to its fixed costs and net income. Once the contribution margin is calculated, you then subtract all applicable fixed costs to arrive at a net profit for that period.

Typically, a company will use a traditional income statement for external reporting purposes and a contribution margin income statement to analyze the performance of a specific product or product category internally.

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Traditional Income Statement Example and Format

Here’s an example of a traditional income statement for a fictional company that manufactures widgets. Last quarter, the company generated $200,000 in sales. Its COGS was $110,000, and SG&A expenses were $48,200.

The Takeaway

A traditional income statement shows business revenue minus expenses and losses for a certain accounting period. It tells you how much income your business netted during that period of time.

Preparing income statements on a regular basis can help you analyze trends within your company, determine if your expenses and/or prices are too high or too low, and make plans for the future, such as whether or not to apply 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 are traditional income statements vs contribution income statements different?

A traditional income statement separates costs by production costs and overhead costs, includes both fixed and variable expenses, and calculates gross profit. The contribution margin income statement, on the other hand, separates costs into variable and fixed costs and calculates a “contribution margin.” Fixed manufacturing costs are considered part of overhead costs and, as a result, are not included in production costs.

What kinds of businesses use traditional income statements?

Any type of business can benefit from preparing a traditional income statement, since it shows whether or not a company has been profitable. In addition, you may need a traditional income statement if you decide to seek outside funding. Lenders and investors often want to see a company’s traditional income statements to learn more about the firm’s revenue, expenses, profitability, and debt.

How do traditional income statements classify costs?

Traditional income statements classify costs by manufacturing costs and non-manufacturing expenses (or operating expenses).

Photo credit: iStock/AmnajKhetsamtip

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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Understanding key financial ratios and what they say about your business’s health is an important part of managing your business finances.

Financial ratios are tools that can help you (as well as potential investors and creditors) analyze your business’s financial activities, liquidity, growth, and profitability. They can help you make informed decisions about your business operations and how you invest and spend your money in the future. And you don’t need an accounting degree to understand them.

You can get the numbers to use for financial ratios from your business’s financial statements, including your balance sheet, cash flow statement, and income statement. But once you calculate these ratios, they can provide a bit more insight than those reports offer on their own.

Here’s a look at six of the most important financial ratios for small businesses.

1. Working Capital Ratio

What it is: One key financial ratio you may want to calculate is the working capital ratio, also called the current ratio. It’s a measurement of whether your company can easily pay short-term liabilities with its current assets.

Why it matters: If you apply for a small business loan, a lender may want to see your working capital ratio because it measures your business’s financial health and can tell them how great a risk your company presents as a borrower. For investors, it’s important to understand the liquidity of your company so they can determine how easy it might be for your business to cover debts and get to profitability.

How to calculate: The working capital ratio formula is

Current assets / Current liabilities

You’ll find the numbers you need to calculate this ratio on your balance sheet. Current assets and liabilities are usually those expected to be used or settled, respectively, within the year.

Too low a ratio indicates that you have more liabilities than assets and might be a risky investment. But a ratio that’s too high might suggest that you have money sitting in the bank, not being used to grow the company. A good working capital ratio is generally considered to be between 1.2 and 2.

Example: To take a simplified example, let’s say you own a small toy store. By way of current assets, you have $25,000 in inventory. By way of current liabilities, you owe $10,000 on a business credit card and $5,000 in other short-term debts. That means your total current liability is $15,000. To figure out your working capital ratio, you divide $25,000 by $15,000 to get 1.67.

2. Debt-to-Equity Ratio

What it is: Another financial ratio that can help you better understand your business’s liabilities and assets is the debt-to-equity (also known as debt/equity ratio). This is a measure of your company’s debt in relation to equity (or investment).

Why it matters: Your debt-to-equity ratio indicates how much risk your business runs when it comes to paying back your long-term debt. While taking on debt can help you grow your company, it shouldn’t end up costing you more than the potential growth it creates. Investors typically want to work with companies that aren’t stretched too thin because those are risky investments.

How to calculate: The debt-to-equity ratio formula is

Total liabilities / equity (or investment)

If your company has investors, you use equity for the bottom half of the equation. If it doesn’t, you use the investment that you yourself have made in your company. In terms of debt, only long-term debt (debt being repaid over more than a year) is considered.

The lower the ratio, the less risk your company presents to investors. A ratio of less than 1.0 is typically considered good.

Example: Imagine you have a small bakery. It has an outstanding business loan on which it owes $10,000 plus $5,000 that it owes on a business line of credit. It doesn’t have any shareholders, but you invested $35,000 to get the business off the ground. To find your debt-to-equity ratio, you would divide $15,000 by $35,000 to get a debt to equity ratio of 0.43.

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3. Gross Profit Margin

What it is: Another basic financial ratio you may want to look at is gross profit margin. It’s an indicator of how much profit you’re seeing after you’ve covered your cost of goods sold. Cost of goods sold (COGS) means all the direct costs that go into creating your product, including raw materials, inventory, and labor.

Why it’s important: You may have different profit margins for different products, but your business’s overall gross profit margin looks at all of them together to determine how well you’re using that profit in your company. Put another way, your gross profit margin is a measure of how profitable your company is.

How to calculate: The gross profit margin formula is

Net sales / (Net sales – COGS)

This ratio is generally multiplied by 100 and expressed as a percentage

To find your gross profit margin, you’ll first need to know your cost of goods sold, as well as your net sales.

A higher number is typically viewed as better than a lower number, but what constitutes a good gross profit margin varies by industry. Manufacturers of electrical equipment, for instance, average a gross profit margin of 35%. Grocery stores, on the other hand, average a gross profit margin of 25% to 30%.

Example: Let’s say your small business’s net sales are $10,000 a month. Additionally, we’ll imagine that it cost you $5,000 in direct costs to make your inventory for a month. To calculate your gross profit margin:

(10,000-5,500) / 10,000 =

5,500 / 10,000 = 0.5

Multiplying this by 100, we arrive at 50%.

4. Cash Ratio

What it is: Cash ratio paints a picture of your company’s liquidity. It looks at cash and cash equivalents (assets that can be quickly transferred into cash, like savings accounts) as well as current liabilities (debts due within the year) to demonstrate how easy it would be for your company to pay off all its liabilities without liquidating assets.

Why it matters: Creditors care about your cash ratio because it tells them the value of your current assets that could, if necessary, be converted into cash to cover liabilities. It’s a fairly conservative financial ratio compared to others because it only considers cash or cash-equivalent assets and not other assets like accounts receivable or real estate.

How to calculate: The cash ratio formula is:

(Cash + cash equivalents) / Current liabilities

In general, a higher ratio is deemed better than a lower one since it suggests that the company can probably pay off its debt with relative ease. While there’s no official cutoff, a ratio above 0.5 to 1.0 is generally thought to be good.

Example: Let’s imagine you own a bakery. It has $10,000 in a business checking account, plus $12,000 in equipment and supplies. It also has short-term business debt amounting to $10,000 plus a mortgage on the building the business is in for $150,000. To figure out your cash ratio you would divide $10,000 by $10,000, giving you a ratio of 1.0. (Remember, you’re only dealing with short-term debt and assets you can easily and quickly transfer into cash to pay it off. Therefore the mortgage, which is long-term debt, and the equipment and supplies, which may not be easy to turn into cash, don’t factor into the equation.)

Recommended: Debt to EBITDA Ratio

5. Inventory Turnover Ratio

What it is: If you sell products, this is a useful ratio because it looks at how quickly your company sells and turns over inventory each year.

Why it matters: You may have some products that aren’t selling well, and this calculation will direct you to the ones that you might want to stop making in favor of more popular (and profitable) products. The higher your inventory turnover ratio, the higher your sales volume.

How to calculate: The inventory turnover ratio formula is

Cost of goods sold / Average inventory

You may want to compare inventory turnover from one point in time to another and then average the inventory costs from the beginning and end of that period.

A higher number is generally considered better than a lower one, since it suggests a high turnover rate for your product. But what number is specifically considered good varies by industry.

Example: For the year 2020, your small fan production company has a COGS of 100,000. Your average inventory for the year amounts to $25,000. To find your inventory turnover ratio, divide $100,000 by $25,000. Your ratio is 4.0.

6. Fixed Asset Turnover Ratio

What it is: In your business, you have what are called fixed assets. These are assets like commercial property, machinery, equipment, and commercial vehicles. These fixed assets should be helping you make more money. And that’s what the fixed asset turnover ratio calculates: how well you’re leveraging these fixed assets to increase your revenues.

Why it matters: A low fixed asset turnover ratio may indicate that your company has over-invested in fixed assets that aren’t generating an appropriate amount of revenue.

How to calculate: Here’s the formula for fixed asset turnover ratio

Net sales / Average fixed assets

A higher rate is usually seen as better, as it suggests that your business is getting value from its fixed assets. However this ratio can vary enormously, so there’s no one yardstick to measure what a good fixed asset turnover ratio is. The ratio may be most useful when you’re comparing your company’s use of its fixed assets over time or when you’re comparing your company against its industry as a whole.

Example: If your small business pet toy company had net sales in 2020 of $150,000 and had an average fixed asset total of $50,000 (that you’d invested in machinery), your fixed asset turnover ratio would be 3.0.

Recommended: How Much Does It Cost to Start a Business?

What Is Ratio Analysis?

You and your potential investors can use financial ratios to analyze the data in your financial statements and glean information that goes beyond what those statements tell you straight out. This is called financial ratio analysis.

Typically, you’d use spreadsheet or ratio analysis software to calculate the financial ratios most important to you on a quarterly basis. You can compare the ratios you get with the last quarter or with the same quarter in previous years to spot trends.

Sometimes, it may be helpful to compare your ratios to those of other companies in your industry. That can help you gain a good understanding of your company’s performance. You may want to run analyses on several types of financial ratios to get the full picture of your business’s financial wellbeing.

As the owner of your company, you’ll want to stay on top of your financial ratio analysis. If you have a financial manager or investors, they may also want access to this data on your key financial ratios.

How and When to Conduct Analyses

Using financial ratios can be helpful if:

•   You want a snapshot of your business’s performance. This could be because you just want a benchmark or because you’re considering a big move like selling the company.

•   You’re looking to take on investors or apply for a business loan. In these cases, your investors or creditors may request certain financial ratios to determine how much of a risk your company presents to them.

•   You’re curious about where your business stands in relation to others in your industry.

Recommended: Small Business Tax Deductions

Pros and Cons of Working With Financial Ratios

Using financial ratios can help you make better decisions about the future of your business and how it uses capital. Being able to look back at your company’s performance over time can give you (and investors) a good sense of its general financial wellbeing and predict future growth. If the numbers haven’t been good, you can make decisions that put the business back on course for success.

Pros of Working With Financial Ratios

You may also be able to identify trends when you compare your business’s ratios from one time period to another. For example, if Q4 ratios are always positive, it could be an indicator that sales tend to be particularly high that quarter, and you can plan to leverage that fact accordingly.

Calculating your business’s financial ratios and then comparing them to those of others in your industry can give you an understanding of where your company fits among its peers.

And if you’re looking to bring on an investor, having these financial ratios available gives him or her a clear understanding of what kind of risk your company represents as an investment.

Recommended: Microloans for Women Owned Businesses

Cons of Working With Financial Ratios

On the other hand, financial ratios don’t always account for economic conditions. If there’s been a period of inflation, comparing numbers from one period to another may not paint an accurate picture, and the same thing is true if there’s a period of economic decline.

Additionally, it can be trickier than you’d think to compare your ratios to industry numbers. Many companies may be tempted to fudge their ratios to make their businesses look more successful than they are, so it may be challenging to get a real apples-to-apples comparison.

The Takeaway

No matter why you’re considering your financial ratios, congratulations. You’re one step further in owning your business’s financial wellbeing. The more you know about your finances, the better informed you are to make decisions to help your company grow over time and to attract investors as a lucrative investment.

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.

Photo credit: iStock/pixdeluxe

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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There are 604,176 small businesses in Maryland, accounting for 99.5% of all businesses in the state. Collectively, Maryland’s small business owners employ over 1.2 million individuals, which represents nearly half of the state’s private workforce.

A large portion of Maryland’s small businesses are concentrated in the professional, science, and technology industries, thanks to the proximity to government agencies that offer grants and contract money for scientific research and studies. However, there are Maryland grants available for small and midsize businesses in a wide range of industries.

Here’s a look at five grants you may want to check out, plus other ways to find business funding.

Grants for Small Businesses in Maryland

If you’re looking for a small business grant to grow or start your business in Maryland, here are some options to consider.

Partnership for Workforce Quality (PWQ) Grants

•   Program description: The PWQ program provides eligible small and midsized manufacturing and technology companies with matching grants to train employees in new technologies and production processes.

•   Incentive: Receive matching grants of between $10,000 and $200,000 to reimburse up to 50% of the costs of qualified projects.

•   General requirements:

◦   Be a Maryland-based employer

◦   Have at least 10 full-time employees

◦   Be current on your state tax obligations and not in default with any Maryland Department of Commerce program

◦   Priority will be given to manufacturing and technology companies

•   How to apply: Contact your Maryland Department of Commerce regional representative to apply for PWQ funding.

Recommended: Business Cash Management: Explained

Build Our Future Grant Pilot Program

•   Program description: The Build Our Future Grant Pilot Program provides Maryland-based private companies with grants for infrastructure projects intended to support innovation in an eligible technology sector.

•   Incentive: Receive up to $2 million in a fiscal year and use the funds for an eligible infrastructure project in select industries, including advanced manufacturing, artificial intelligence, cybersecurity, and life sciences.

•   General requirements:

◦   Be a Maryland-based company in good standing with the state

◦   Propose an infrastructure project that advances innovation and growth in an eligible technology sector

◦   For a grant award up to $1 million, you provide matching funds that are at least 200% of the grant amount

◦   For a grant award exceeding $1 million and up to $2 million, you must provide matching funds that are at least 400% of the grant amount

•   How to apply: You can submit your application on the Build Our Future Grant Pilot Program’s website. Funding for 2024 is closed. Applications for 2025 funding will be accepted starting in the Fall of 2024.

Recommended: How Do You Open a Business Checking Account?

ExportMD Program

•   Program description: The ExportMD Program can reimburse some of your international marketing expenses if you own and operate an eligible Maryland small or midsize business.

•   Incentive: Receive up to $5,000 in reimbursement for eligible business expenses,, including the cost of travel related to international marketing, website development, and registration costs for virtual trade shows.

•   General requirements:

◦   Be an established Maryland business in operation for at least 12 months

◦   Be in good standing with the Maryland Department of Assessments and Taxation

◦   Meet the federal definition of small business for your industry

◦   Be planning an international business initiative to commence and conclude within six months of the application deadline

◦   Recipients of the ExportMD grant in the last yea​r are not eligible

•   How to apply: Contact the Maryland Department of Commerce if you’re interested in the ExportMD Program.

Maryland Agricultural & Resource-Based Industry Development Corporation (MARBIDCO) Grants

•   Program description: MARBIDCO offers several grant incentive programs for farm, forestry, and seafood businesses, including the Resilient Food Systems Infrastructure (RFSI) Matching Grant Program. The RFSI grant supports expanding capacity for the growing, processing, manufacturing, and distribution of locally and regionally produced food products,

•   Incentive: Eligible farmers can receive from $10,000 to $100,000 to purchase equipment or $100,000 to $3 million to fund capital investments.

•   General requirements:

◦   Be an agricultural marketing group or legally organized farm cooperative including at least four Certified Local Farm and Certified Chesapeake Invasive Species Providers

◦   Be a wholesale distributor that is selling to at least one institution and aggregating from at least four Certified Local Farm and Certified Chesapeake Invasive Species Providers

◦   Propose a project that meets all RFSI application requirements

•   How to apply: Contact MARBIDCO to find out about and apply for any available grant programs.

Recommended: Comparing Personal Loans vs Business Loans

Maryland Manufacturing 4.0 Grant Program

•   Program description: ​The Maryland Manufacturing 4.0 grant program provides matching funds to small and midsized Maryland manufacturers to adopt new technologies and digital business practices.

•   Incentive: Eligible manufacturers can receive $25,000 to $500,000 in matching grants for the purpose of implementing a proposed modernization project.

•   General requirements:

◦   Be an existing business in good standing with the state of Maryland

◦   Company has operated for at least three years

◦   Be a manufacturing sector employer under the North American Industry Classification System (NAICS)

◦   Have between three and 250 total full-time employees

◦   Be in good standing with federal Occupational Safety and Health Administration and Maryland Occupational Safety and Health regulations

◦   Demonstrate an ability to implement a proposed modernization project

◦   Demonstrate your ability to meet the matching funds requirement

•   How to apply: Download the Maryland Manufacturing 4.0 Grant application on the state Department of Commerce website and apply during an open grant period.

Who Provides Small Business Grants in Maryland?

State and local government agencies, including the Maryland Department of Commerce, offer a variety of small business grants in the Old Line State.

Recommended: Can A Personal Loan Be Used to Start a Business?

Do You Have to Pay Back a Small Business Grant?

Generally, no. Unlike small business loans, you usually do not need to repay the funds you receive through a small business grant. That said, small business grants typically come with terms and conditions, and you may be responsible for paying back the grant if you violate those terms.

You typically have to sign a funding agreement to accept a small business grant. Using the grant for an illegitimate purpose may violate the agreement and require business owners to pay back the grant.

In addition, small business grants may require you to spend the money by a certain date. You may also have to provide proof of payment and a written statement detailing how you’ve spent the grant.

Who Is Eligible for Small Business Grants in Maryland?

Local business owners or operators of an enterprise with fewer than 500 employees may be eligible for small business grants in Maryland.

The U.S. Small Business Administration’s Office of Advocacy generally defines a small business as an independent business having fewer than 500 employees. A small business with just a few employees, even self-employed individuals, may be eligible for small business grants.

What Industries Does Maryland Support With Grants?

Maryland offers grants supporting a variety of business sectors, including:

•   Advanced manufacturing

•   Aerospace

•   Agriculture

•   Artificial intelligence

•   Biotechnology

•   Blue technology

•   Cybersecurity

•   Defense

•   Energy and sustainability

•   Life sciences

•   Manufacturing

•   Quantum

•   Sensors and robotics

Maryland Resources for SMB Owners Looking for Funding

Here are some resources for small and medium-sized businesses looking for funding in the Old Line State.

Maryland Small Business Development Center (SBDC)

The Maryland SBDC is a statewide program that can provide Maryland’s small business owners with the following services at no cost:

•   Access to customized research reports

•   Individualized business consulting

•   Online and in-person training events for Maryland small business owners

SBA District Office in Maryland

The U.S. Small Business Administration (SBA) is a federal agency that provides resources and support to small business owners. The SBA has two district offices in Maryland:

•   SBA Baltimore District Office. This SBA district serves Baltimore City and all Maryland Counties, except for Montgomery and Prince George’s counties.

•   SBA Washington Metropolitan Area District Office. This SBA district serves the District of Columbia, two counties in Maryland (Montgomery and Prince George’s), and three counties in Northern Virginia (Arlington, Fairfax, and Loudoun, plus the cities of Alexandria, Fairfax, and Falls Church).

Alternative Funding Sources for Small Businesses in Maryland

If you don’t qualify for small business grants in Maryland, you’re not necessarily out of funding options. Here are some other ways you may be able to get the capital you need to launch or grow your business in Maryland.

Maryland Microloan Lenders

Community-based nonprofits may offer microloans of anywhere from $500 to $50,000 to underserved small business owners in Maryland, such as women and minorities. Interest rates tend to be low (or zero in some cases), and the qualification criteria are often less stringent compared with other business loans.

Microloans can provide an infusion of cash to get a startup off the ground or grow an existing business. However, you may need to provide a microlender with a personal guarantee and collateral in order to secure funding.

Maryland SBA Loans

The U.S. Small Business Administration (SBA) offers a range of loan programs to help small businesses secure funding. These loans are partially guaranteed by the SBA, which reduces risk for lenders and increases accessibility for businesses. The 7(a) loan program is one of the most popular, providing funds for working capital, equipment purchases, and debt refinancing. SBA loans typically offer longer repayment terms and lower interest rates compared to conventional business loans.

Recommended: North Carolina Small Business Grants

Maryland SMB Term Loans from Private Lenders

Many banks, credit unions, and online lenders in Maryland offer term loans to small businesses. Online alternative lenders often have more flexible eligibility criteria than traditional banks, making them a good option for businesses that are just starting out. However, interest rates tend to be higher.

With term loans, you receive a lump sum of money up front then repay it over a set period of time, often with a fixed interest rate. You can use the funds for various purposes, including business expansion, buying equipment, and working capital.

Recommended: What to Know About Short-Term Business Loans

Business Lines of Credit

A business line of credit provides businesses with flexible access to funds up to a predetermined limit. Unlike traditional loans, a line of credit allows businesses to borrow only what they need, when they need it. This flexibility can be helpful for managing cash flow, covering unexpected expenses, and taking advantage of growth opportunities.

Business lines of credit typically have variable interest rates and can be secured or unsecured, depending on the lender and the borrower’s creditworthiness.

Equipment Financing

Equipment financing is specifically designed to help businesses acquire necessary equipment. The equipment itself serves as collateral for the loan, making approval easier. This type of financing can be used to purchase machinery, vehicles, technology, and other essential equipment. Terms for equipment financing vary based on the lender and the type of equipment, but generally feature fixed interest rates and repayment terms from three to ten years.

The Takeaway

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.

Frequently Asked Questions

How do you get a small business grant in Maryland?

To find a small business grant in Maryland, you might start by contacting the state’s Economic Development Administration and your local Small Business Development Center. You typically need to submit a grant application as a qualified small business owner to be considered for a small business grant in Maryland.

How hard is it to get a business loan in Maryland?

You typically need to have been in business for at least two years and have strong financials to qualify for a business loan from a bank. Online alternative lenders tend to have more flexible qualification criteria for small business loans but generally charge higher interest rates.

What is the easiest SBA loan to get approved for?

There’s no guarantee you’ll get approved for any SBA loan, but SBA microloans may be one of the easier ones to get if you’re a new business owner. Startups may be eligible for SBA microloans of up to $50,000. If you’re looking for a streamlined application process, you may want to look into an SBA Express loan.

Photo credit: iStock/RgStudio

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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.

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