Business Cash Flow Loans

Business Cash Flow Loans

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Gary Hemming

Author: Gary Hemming CeMAP CeFA CeRGI CSP

20+ years experience in business loans

Business cash flow loans are a key tool for companies in need of a boost to their working capital. Cash flow finance can be used to fund daily business expenses, marketing costs, payroll costs and any other business cost.

Used to cover short term finance needs, a business cash flow loan is an unsecured loan.

The key feature of this type of finance arrangements is that they are not based on your current assets such as property, equipment or inventory, they are based on future revenue and the likelihood that your business will be profitable.

How do business cash flow loans work?

In many ways cash flow loans are similar to other types of business finance in that they are a form of credit to bridge the gap between selling goods and receiving funds, the loans are repaid with an agreed amount of interest.

The main difference with cash flow loans is that they are based on future profitability and can be used by smaller businesses that do not have an established history and may find other forms of funding more difficult to obtain.

Cash flow loans are a form of fast business loan and are often do not require the same level of comprehensive paperwork as other types of finance such as invoice finance, asset finance or secured business loans.

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What can they be used for?

Typically cash flow loans are a type of short-term business loan for shorter term financing and suit businesses that have variable periods of income throughout the year.

For example, a BBQ supplier may have a specific sales pattern according to the seasons and might wish to borrow money during a quiet period in February to be repaid with interest in July, which is a profitable period for them.

What are the pros and cons of cash flow loans for businesses?

There are some key pros and cons to consider. They are:

Advantages

Cash flow loans are one of the few forms of finance that are available to start ups and fledgling businesses that are growing yet have no long term history.

They are often quick to arrange when emergency funding is required in comparison to other loans and are a short term solution.

The application process for cash flow loans is also a lot less onerous as they are unsecured business loans based on future earnings and, therefore, do not require a comprehensive evaluation of past performance and valuation of assets.

If a business cash flow loan is used strategically and in the short term to smooth peaks and troughs in income, then repaid within a brief timeframe it can actually improve the credit rating of a business.

Disadvantages

The costs of  a cash flow loan can be higher than other types of finance as it is not secured on invoices or assets.

Fees for missed payments may be high and it is more applicable to short term arrangements.

Will I qualify?

Cash flow loans are unsecured and based on the potential of a business, if you can demonstrate a strong income, or predicted income it is likely you will qualify.

Additionally, because no physical assets are required to secure the loan the process is relatively straightforward and much quicker than other types of business finance.

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What are the costs?

The costs of cash flow loans can vary considerably depending on your circumstances.

If you are able to demonstrate a strong predicted income and solid trading history then it is likely you will be able to have more flexibility and choice in terms of providers.

Interest is charged on cash flow loans, and there may be fees – particularly relating to missed payments. It is important for you to evaluate options with a specialist business loan broker or adviser before proceeding with a loan.

To get the best business loan rates, your credit history, trading history and ability to meet repayments must be strong.

Read more – limited company loans or corporation tax loans.

Are there alternatives available to business owners?

Yes. There are a number of alternatives available to businesses such as: invoice finance, asset finance, merchant cash advance and supply chain finance.

Invoice finance and factoring: this allows you to use your outstanding invoices to secure financing.  Invoice factoring is where a lender will pay you directly and take ownership of the invoices, they will collect the payment and keep the payment. With invoice factoring the lender will take a fee for providing the service or a percentage of the invoice amounts.

In the UK invoice discounting is part of the invoice finance range of options and this is where the buyer pays promptly for a discount on goods or services. As your customers are unaware that you’re using this type of finance, it is often referred to as confidential invoice discounting.

Invoice financing can help a business maintain cash flow if payments are outstanding for a long time and money is required urgently.

Asset financing is used for short term working capital and can be based on monies due to the business or assets – this is sometimes known as ‘equipment financing.’

A merchant cash advance, often called a business cash advance is a type of finance often used by businesses who have substantial credit and debit card transitions. Finance is provided by a lender in return for payments based on a percentage of card sales until full repayment is achieved.

Supply chain finance can also be known as reverse factoring and supplier finance. It is different from other trade finance in that it is a type of finance that can be used for business at both ends of the supply chain unlike, for example, export and import finance that are specifically tailored to buyers or sellers.

Frequently Asked Questions

Cash flow loans are flexible and can range from relatively small amounts such as £5,000 to £500,000. For larger amounts over a longer term, other products might be more suitable. We also offer a range of small business loans for smaller companies.

Repayment terms vary from lender to lender. Ordinarily cash flow loans are taken for a shorter period than other financial products and are designed for acute cash flow issues; however, the repayment period can be from a year up to seven years.

Cash flow finance can be arranged in as little as 24 hours, however, it can take longer and it is always advisable to take time to evaluate your options with your broker to understand what financing package suits your circumstances best.

Potentially, yes. Whilst good credit is always helpful in terms of approvals, a poor credit rating is not necessarily a barrier to cash flow finance.

It is important to work with a specialist lender who understands this type of finance and who will look at your current situation to assess what will work for your business.

We work with a range of specialist bad credit business loan lenders.

For start up businesses or businesses with no solid credit history a business cash flow loan can work well if it can be shown that the loan is likely to be repaid within the terms set out by the lender.

The business loan interest rates on loans may be higher for businesses with bad credit. Comparing lenders by using a specialist business loan broker is recommended to ensure you get the best financial package for your business.

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