What Are Cash Flow Loans?

On this page:

Intro to Cash Flow Loans

What Is A Cash Flow Loan and How Do They Work?

Different Types of Cash Flow Funding

- Merchant Cash Advance

- Invoice Finance

- Unsecured Business Loan

- Revolving Credit Facility

What Can I Use a Cash Flow Flow Loan For?

Benefits of Cash Flow Loans

Factors to Consider When Borrowing a Cash Flow Loan

How to Determine if You Need a Cash Flow Loan

How to Apply For a Cash Flow Loan

Intro to Cash Flow Loans

Whether you operate a small, medium or large company, a healthy cash flow is essential for profitability and growth. Cash flow finance can help you budget for seasonal peaks and troughs and any other monetary gaps left by unforeseen circumstances or payment defaults.

Are you interested in cash flow funding? Read our ultimate guide on cash flow loans, where we discuss how they work, when to consider one, and their benefits.

Maximise cash flow in your business with a cash flow loan.

What is a Cash Flow Loan, and How Do They Work?

Business cash flow loans are a form of short-term funding used to support businesses through low revenue months or financial emergencies. A lender offers the loan based on the revenue you expect to earn in the future.

You're required to pay cash flow loans back over a set period – usually between three to twelve months. It's imperative to check the terms and conditions of your loan, as repayment schedules can vary drastically between lenders.

Different Types of Cash Flow Funding

There are four different types of cash flow loans for you to choose from, and these include:

Merchant Cash Advance

A merchant cash advance is a short-term, unsecured cash loan that you repay through future debit and credit card sales. The percentage leveraged against these cards is pre-agreed when you take out the business loan. As a result, your loan repayments vary depending on your business sales. Read more about how a merchant cash loan works here.

Repay cash loans through future card sales.

Invoice finance

Invoice finance enables you to receive cash tied up in outstanding invoices. This means you don't have to wait for the customer to make a payment and can repay the finance once it's been paid.

Invoice financing allows businesses to generate money against unpaid invoices.

Unsecured Business Loan

An unsecured business loan is a type of financing that doesn't require security or leverage. With unsecured business loans, the company's assets and valuables are not used as collateral. Cash flow loans are unsecured, so they're quicker to obtain.

Unsecured cash flow loans are offered by lenders based on creditworthiness.

Revolving Credit Facility

A revolving credit facility serves as an overdraft for your business, allowing you to draw money to cover necessary needs. These loans have a pre-agreed maximum amount that you can access. The company can withdraw the funds, repay, and withdraw again.

"Revolving credit facility is a flexible way of securing a cash flow loan."

What Can I Use A Cash Flow Loan For?

Cash flow loans are used to keep your business operations afloat. You can use your cash flow loan for several things as long as it relates to your day-to-day business operation. Some examples include:

• Funding recruitment initiatives
• Purchasing new business equipment
• Renovating or expanding the business
• Purchasing stock
• Paying overhead expenses
• Marketing the business
• Paying employees
• Cover seasonal troughs
• Cover late customer invoices
• Funding equipment repairs
• Introducing a new inventory line

In short, cash flow loans can serve as a short-term solution to temporary business problems. They ensure you can afford business necessities or new initiatives without cutting costs elsewhere.

Benefits of Cash Flow Loans

The main advantage of a cash flow loan is that it's unsecured. This means you can get access to finance quicker, and you don't need to provide collateral in the form of property or assets. Lenders are also more concerned with your past and future cash flows and therefore don't base their loan on your asset value.

Since cash flow loans operate on a short-term basis, you also don't have to worry about being tied into a long-term agreement where you have to make repayments for years to come.

If your business struggles with irregular cash flows, these loan types can help you survive until trading picks up again.

Cash flow loans are granted based on past and forecasted cash flow.

Factors to Consider When Borrowing A Cash Flow Loan

It's crucial to consider your options when applying for a cash flow loan. Lenders often have different financing fees, so compare products first.

Additionally, these loans typically have higher repayment interest rates when compared to long-term loans. Remember, interest is how lenders make a profit. Before entering an agreement, make sure you know the annual percentage rate (APR) on your cash flow loan. Also, ensure that you're comfortable with the repayment schedule and stick to it.

Do your research and find the right lender to fund your cash flow loan.

How to Determine if You Need a Cash Flow Loan

Determine if you need a cash flow loan by reviewing your business income statement. This allows you to calculate how much free cash flow you have and whether extra money could be beneficial to improve operations or keep your business afloat until next month.

Also, consider your current investment plans. Cash flow loans can provide you with the additional capital necessary to fund new initiatives more quickly while remaining financially responsible.

Consider investment plans when applying for a cash flow loan.

How to Apply For a Cash Flow Loan

When applying for a cash flow loan, be prepared to demonstrate how you intend to use the loan to manage your cash flow. Lenders may also require account documents or trading records.

Once you apply, you're likely to receive quick approval if your business records are approved.

Love Finance is a business lender offering cash flow loans for small businesses through automated online services. We are committed to providing customers with simple and dependable loan services. Begin your quote with us today!