Advantages of Sweep Business Loans

A "sweep" arrangement is a type of business loan from your bank that allows you to efficiently manage your company's money, even if your cash flow is uneven. This business loan automatically sweeps funds from one account to another based on agreed terms to cover overdrafts and quickly allow for needed purchases or pay off higher-interest debt.

Saving Time and Money

Applying for a sweep business loan with your bank is like applying for any other loan. The bank will advance the money and will want documentation to show your ability to repay. The better your business' credit history, profitability and balance sheet, the lower the interest rate you will be offered. An additional benefit is that once approved, the sweep account meets multiple borrowing needs without your having to take the time to apply for additional loans.

More Than one Loan

The most common use of a sweep business loan is to cover unexpected overdrafts in your business checking accounts. If checks unexpectedly clear early or a deposit is not made or is delayed, the automated process of the sweep will simply transfer funds from the sweep account - which is a loan - to the appropriate business checking account to cover the potential overdraft. But sweep accounts can also be used for short-term borrowing if you need equipment or repairs at your business but don't have the cash. You can have additional funds swept into your account much as with a line of credit.

Rate Reduction

A sweep account business loan allows you to sweep money into the credit card account and pay off the higher-interest debt with the lower-interest sweep business loan. If cash is tight, a sweep business loan can be used to pay monthly loan payments on long-term, higher-interest loans as well. When attempting to reduce debt, it is always in your best interest to pay off the highest-interest debt first.

Reputation Protection

A bounced check for a business can hurt that firm's reputation, lower confidence of employees or cost business opportunities. With a sweep business loan, you have automatic reputation protection because the funds will always be "swept" from one account to other to cover the debt.  You will never run into this problem again.

Managing Cash Flow

Even if overdrafts aren't a risk for your business and your reputation is in fine shape, all businesses must work to manage cash flow. Some months, payroll must be paid before all expected receivables are collected. A sweep business loan allows you to pay the business' current obligations, knowing your business will soon have collected the money to repay the loan. This is especially crucial for seasonal businesses. As an example, a seasonal business such as a lawn and garden nursery will need to increase staff as warm months approach, which is exactly at the end of their slow season. A sweep business loan can help that firm meet its obligations with funds that are easily paid back in the busy summer months.