Small businesses understand that cash flow is their lifeblood. And while it would be nice for the business to always generate positive cash flow, sometimes we need a little help to get through the ebb and flow of the business cycle. Sometimes “cash flow” has to be borrowed. The trouble is when you go looking for credit you’re not always sure how you’re creditor will interpret your risk as a small business borrower. It’s important to understand that different creditors have different approaches.
Imagine that you have the opportunity to invest in a company. The current owner paints a very bright picture of the company’s future. He says that the company has been so busy that current employees can't keep up with sales. As a result, the company needs cash to continue to grow. The company’s income statement looks too good to be true as it shows a lot of revenue and very few expenses. (You’ve discovered a cash cow!)