Cash flow, the ability to access sufficient cash to meet day-to-day financial obligations, can make or break a business. Even a profitable business, faced with significant cash requirements in order to manufacture goods or put in an agricultural crop for a specific selling season, may be unable to pay bills and forced to close its doors if cash is temporarily unavailable.

When a company faces seasonal cash flow problems, a business loan may not be the best financial instrument to consider. Business loans work well when there is a need for a lump sum of money to finance a start-up or expansion phase with repayment made over time at a specific rate of interest. Instead, the cash poor company needs the ability to access cash for a short period of time, and then repay, incurring interest expense for the shortest possible period of time.

A business equity line of credit typically involves working with a financial institution to establish a pool of money that is available to your business, to be withdrawn as needed, and repaid with interest incurred only during the borrowing period. This loan instrument, typically secured by business assets, allows a company to pay for the resources it needs to meet a seasonal demand, and then repay the money from the season's revenues. It is an excellent strategy because it allows the company to fill in cash where necessary with the least amount of borrowing expense.

The amount of cash placed on reserve for the company's use is determined by reviewing operating history to identify the seasonal pattern of cash needs and analysing revenue projections. A good business plan with credible projections based on analysis of past operating performance will make a big difference in inspiring lender confidence in your company's ability to manage a business equity line of credit. Alternatively, a broker can help you find the best rates by reviewing your financing needs with multiple lenders.