Small Business Scalability Scalability can be delineated as how easy or simple it is for a business to grow and extend its business model and at the same time cultivate its revenues substantially devoid of similarly increase its level of costs incurred. Scalability is of great importance to small businesses. In relation to the fixed costs and expenses, the revenues of small businesses have the potential to rise exponentially and as a result, scalable businesses have an offering for more profitability and huge growth prospects. On the other hand, cash flow encompasses the money that moves into and out of a business, which as a result has an influence on the liquidity of the business. Line of credit encompasses the amount of credit that a business or entity as a borrower is extended to. The purpose of this paper will be to discuss the significance of credit lines and cash flow in small businesses. The paper will also outline the interrelation of these two elements and their relationship with small business scalability. Lastly, the paper will expound on the impact of the sub-prime mortgage crisis on the capability of small businesses to attain credit.

Importance of both Credit Lines & Cash Flow in Small Business

Managing credit lines for small businesses is of great significance to their success. This is for the reason that it can assist small business to make certain that they have a positive cash flow and also provide them a number of advantages. For starters, having a good credit line will guarantee that small business obtain financing when they require it. The business credit line is imperative as it more often than not edicts the sum as well as terms of a loan. Secondly, the credit line is significant in that it makes certain that small business attain required supplies at reasonably priced terms. Suppliers of small business assess the credit line and subsequently make decisions regarding how much credit can be extended to such businesses. Therefore, having a good credit line credit can make certain that the small business obtains the supplies necessitated under the best conceivable terms, which in turn frees up more capital or cash for the business (D&B).

Another aspect is that by ascertaining the credit of consumers, small businesses obtain the capacity to offer better terms and deals to consumers who are creditworthy and evade transacting business with consumers who make slow payments. It is imperative to note that both of these moves can result in improved cash flow. By noting the importance of a credit line, the small business is able to make certain that deceitful or wrong information is not in the file. Statistics indicate that 15 to 30% of all credit losses are as a result of duplicitous activities (Central Bank). In addition, small businesses have to grasp the significance of cash flows. Unanticipated expenses and fees and come about abruptly and out of the blue for even the perceptive business owners. This is why it is imperative to maintain cash flow at the pole position of a business' considerations. More so, it is important to note that when a business does not have sufficient cash to sustain a sudden or unforeseen cost, there is a great possibility that the business is not prepared or fitted out to last for a long time (Central Bank). Cash flow keeps the business up and running and therefore small business have to realize its importance.

How Credit Lines & Cash Flow can be interrelated

There is an interrelation that exists between cash flow and credit lines. A line of credit, for small businesses, can be an ideal substitute for liquidity, but only for those small businesses that maintain high and steady cash flows. On the other hand, small businesses with the very low cash flow have a very less likelihood and small probability of obtaining a line of credit. This is for the reason that they are largely reliant on cash in the management of their liquidity and business operations. Therefore, these two interrelate in that of cash flow goes below a certain level, usually preset by the lending institutions or suppliers, implies that the small business is restricted in borrowing or attaining a line of credit (Sufi 1058).

Small Business Scalability in Relationship to Cash flow & Credit Lines

Small business scalability does have a relationship with cash flow. This is for the reason that proper scalability allows for the expansion and growth in revenue for a small business while at the same time diminishing and curtailing its increases in operational expenses. Therefore, scalability for a small business has a relation with cash flow in that it generates cash inflow and also decreases the...

In the same manner, small business scalability does have a positive relationship with credit lines. For starters, a business is deemed to be scalable if it can sustain its revenues and at the same time diminish the costs incurred from increasing. These two elements have a relationship in that, a small business attains a credit line if it is scalable. That is, a small business will attain a line of credit if cash flow is positive, in that, the revenues are increasing and the costs are decreasing. In a similar manner, by attaining a line of credit, the cash for the small business becomes freed up. This in turn implies that the small business is able to employ this other cash for different purposes in its business operations to increase the revenue generated. These three elements are interrelated (LeBlanc).
Specific impact that the 2007-2009 sub-prime mortgage crisis had on Small Business credit line

The 2007-2008 sub-prime mortgage crisis led on to a major financial crisis that affected financial institutions, corporations and small business throughout several nations. Small businesses were more adversely affected in comparison to larger businesses in the course of the 2008 financial crisis, and have been sluggish to recover from a recession of infrequent complexity and interval. More than everything this sub-prime mortgage crisis had a massive disparaging influence on the line of credit of small businesses. For starters, it is imperative to point out that financial crises have a tendency of adversely impact small firms compared to large firms. In accordance to Mills and McCarthy (3), small firms are usually the ones affected the most during financial crises for the reason that they are more reliant on bank capital to finance and bankroll their growth. The credit lines operate and function as financial accelerators for small firms. Bank credit, for the most part through term loans, is one of the principal sources of external funding for small businesses and is crucial to assisting small firms sustain cash flow, employ new personnel, buying new inventory or equipment, and develop their business (Mills and McCarthy 3).

The 2007-2008 financial crisis increased and amplified regulatory oversight on the accessibility of credit for small businesses. This is for the reason that, in the present day, not only is there a greater level of regulation as well as greater costs for compliance, there is ambiguity regarding how regulators perceive the credit features of loans with regard to their portfolios. As a result, this makes them have a less likelihood of making a loan on the basis of softer or more lenient underwriting measure, for instance, having known the small business borrower to be honest or having a long standing association (Mills and MccCarthy 4). This has cause banks to have a hard time in granting loans to small businesses. Small businesses continue to experience difficulty in attaining lines of credit.

Conclusion

Scalability is of great importance to small businesses. In relation to the fixed costs and expenses, the revenues of small businesses have the potential to rise exponentially and as a result, scalable businesses have an offering for more profitability and huge growth prospects. Cash flow and credit line are important elements that play part in the success of a small business. These two are interrelated to the scalability of small businesses. For small business scalability, the cash inflows are increased through more revenue and at the same time diminishes the cash outflow through the costs incurred. Cash flow keeps the business up and running and therefore small business have to realize its importance. Similarly, having a good credit line will guarantee that small business obtain financing when they require it. This is particular significant at the present moment. Subsequent to the recession, the banks have become reluctant to give out loans to small business. Small firms are usually the ones affected the most during financial crises for the reason that they are more reliant on bank capital to finance and bankroll their growth. Therefore, it is important for small business to take great importance with regard to their credit worthiness. In addition, small business have to ensure that they have positive cash flow in order to obtain credit from banks and credit facilities (Sufi 1058).

Works Cited

Central Bank. "Small businesses must understand the importance of cash flow." 2016. Retrieved 31 March 2016 from: https://www.centralbank.net/Pages/Learning-Center/Business-Resouce-Center/Small-businesses-must-understand-the-importance-of-cash-flow/

D&B. "Why small…