Why is cash flow so often tight in business?
Being profitable on paper does not mean having cash in the account. The goods are shipped and the work is done, but the customer pays in 30 or 60 days, while suppliers, wages and rent fall due on time. Add stock to buy before a busy season and quieter months afterwards, and these cyclical gaps appear in almost every business.
A long-term loan like one for buying a shop is not the right tool for this. Two others are more commonly used.
Line of credit
In short: the lender approves a limit, you draw on it as needed, and once you repay, the limit is available again.
- You generally pay interest only on the amount drawn.
- It suits seasonal or cyclical needs, such as buying stock before the busy season or waiting for a large customer to pay.
- A limit normally needs security, which may be commercial or residential property.
- Note that limits have a term and are reviewed at renewal. Getting one does not mean it stays available forever.
Invoice finance
In short: you borrow against invoices that have not been paid yet, so you get cash earlier.
- It suits businesses with many customers, slow but predictable payment terms, such as wholesale, logistics and outsourced services.
- You do not have to wait for customers to pay before putting money into the next job.
- The amount available is tied to your receivables, so the more you invoice, the more funding is often available.
- Note that the fee structure and how customer payments are handled differ between providers. Ask how fees are calculated and whether your customers will know you are using invoice finance.
How do you choose?
| Line of credit | Invoice finance | |
|---|---|---|
| Based mainly on | Security and overall finances | Quality of receivables |
| Suits | Seasonal or cyclical gaps | Slow-paying but creditworthy customers |
| Flexibility | Draw and repay as needed | Moves with invoice volume |
| Watch for | Renewal reviews | Fee structure, effect on customers |
Neither is always better, and they can be combined. The key is understanding where your gap comes from: seasonal swings, or slow payment?
Three things to settle before using either
- Is the gap temporary or permanent? If the business is not profitable over time, borrowing to fill the hole only digs it deeper.
- What are you securing it against? If your home is the security, it is exposed if the business runs into trouble.
- Have you priced it fully? Look beyond the interest rate to fees and renewal conditions.
Want to know which suits your business?
Read about our commercial loan service or book a free consultation. Tell us the type of business and how your cash flow runs. The assessment is free, with no fee if we cannot succeed.
This article is general information only and not personal financial or legal advice. Limits, fees, security requirements and approval criteria vary by lender and change over time; rely on the lender’s latest requirements. Written October 2026.
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