Most people want to grow their business, but sometimes growing too quickly can cause cash flow issues that can hurt the business.
For example, we had a client who had a small IT contracting businesses. He landed a big client who wanted a large project completing within 12 months. In order to fulfil this request, the contractor would have needed an extra 4 members of staff to deliver the project on time. He immediately took on the extra staff members he needed but when it came to pay day he could not cover their wages as he had not received his first payment from the new client yet.
To fix this kind of problem, you could access a line of credit from the bank, such as an overdraft or short term loan.
In many cases, this is a viable option because banks are more willing to lend to a business if they can see a draft service contract or letter of intent.
Once the client pays you, you can pay down your debt, which means that you only have to pay interest to the bank for the amount of time you actually need the cash.
This snippet is thanks to www.freshbooks.com: https://www.freshbooks.com/blog/6-ways-to-avoid-cash-flow-problems-in-your-business, and is written by Lee Murphy.