If there is one thing that all business owners can relate to, it has to be the ebb and flow of cash in their business from one month to another. While profitability is usually seen as the biggest indicator of the success of a business venture, healthy cashflow is a stronger predictor for long-term sustainability.

Managing cashflow can be a constant source of stress for MSME business owners in particular, as they tend to have less financial flexibility and are more susceptible to challenges like economic downturns and shocks – as the recent COVID-19 pandemic illustrated. If a business is financially healthy, it gains the resilience to weather such storms.

Effective management of funds is vital to ensure the financial health of small businesses experiencing rapid growth. And for that to happen, it is vital to monitor the cash flow at every stage.

What are the causes of cashflow issues?
Simply put, negative cash flow is when cash outflow is higher than cash inflow in your business. This can be caused due to a number of factors, the most common ones being –

• Inefficient use of resources
• Overspending
• Poorly managed financial records
• Sales lower than expected
• High overhead expenses
• Delayed payments from customers
• Difficulty in obtaining a credit line.

Access to a credit line is especially helpful since you get the power and flexibility of budget to keep your business operations flowing smoothly despite a temporary gap in cashflow.

What is a credit line?
A credit line, or line of credit, is a fixed loan amount that you can procure from a financial organization to use for your business in whichever way you need. It is typically meant to fulfill the short-term needs of your business and is usually paid back within a term of 1 year.

A line of credit loan acts like a safety net – it keeps you financially empowered to confidently engage with other businesses and take care of overheads, expenses, and investments towards growth and expansion. It helps stabilize your earnings and in turn, keeps accounts receivable fulfilled, payroll processes unimpeded, and prevents disruption to your business.

What’s the catch?
One of the major challenges that MSMEs commonly face is obtaining a credit line or loans in the first place. Traditional lenders like banks often look for tangible security or guarantors before they approve a loan, leaving businesses with valuable but less tangible assets – like the goods and services they offer – in a tough spot. Moreover, they often have to pay higher processing fees and interest rates as compared to larger businesses due to perceived higher risks, and may lack information and awareness when it comes to credit lines, lenders, and associated procedures.

One World Bank estimate states that 65 million MSMEs, especially in developing countries, have unmet financing needs to the tune of $5.2 trillion.

The BBX Alternative
BBX offers members an interest-free and collateral-free credit line in Digital Trade Credits (DTC) – the cash alternative that powers our platform. The amount of the credit line is determined by our holistic Know-Your-Customer (KYC) processes. BBX changes the game by assessing a business’s creditworthiness based on its potential, not just what it can offer as collateral. Our algorithm-driven approach allows us to recognize value where others might not, making it easier for businesses to get the resources they need to thrive.

Once approved, members are able to trade with any of the other business owners on our vast global network, using DTC to purchase goods and services to fulfill their business needs, manage their expenses, or pursue growth – all without dipping into their cash reserves.

The DTC credit line is repaid the same way – by providing goods and services to the BBX community. Engaging in this form of reciprocal trade means new customers at minimal cost and the potential to leverage underutilized resources, increasing efficiency.

This powerful and innovative alternative source of financing gives MSMEs a way to simultaneously manage their cashflow and build their financial resilience. As our burgeoning community continues to expand, each individual business owner stands to benefit from greater product and service diversity, as well as increased trading and collaboration opportunities.