Cash Flow Lending

Cash flow is important for a healthy business, but at times you need some help to keep things moving. If you require more money to grow your business, one of the financing options is cash flow lending that may be helpful.

In this article, we’ll explore everything about cash flow lending you should know.

What is Cash Flow Lending?

Cash flow lending lets you borrow funds against potential future revenue for business motives, like temporarily covering wages or investing in new equipment.

You can secure cash flow loans by property, however, there are options that don’t need mortgage security. They can also provide repayment flexibility to suit business requirements.

From a line of credit to a term debt facility, there is a variety of cash flow loans. Consulting with a broker can help you decide which product is suitable for you.

How Does it Work?

Lenders generally look at your business’s health to determine if you qualify for a cash flow lending solution.

Cash flow loans are often ideal for businesses to fill the gaps in the working capital cycle – like the need to pay for expenditure before receiving payment from their customer.

The amount a person can obtain with a cash flow loan depends on their financial circumstances and business requirements.

How is it Different From a Business Loan?

Cash flow loans generally take the form of a cash injection from a short-term business loan or a continuing line of credit.

While loans used to offer a cash flow increase are often shorter than a traditional business loan, line of credit alternatives are usually revolving and may depend on annual review.

Are You Eligible For a Cash Flow Loan?

To determine if you are eligible for a cash flow loan, you have to answer some questions about cash flow lending:

  • Do you have a short-term opportunity, or need money quickly?
  • Do you have an opportunity that will allow you to pay back the loan and produce a return on investment?
  • Are you not having collateral for a traditional business loan?

A cash flow loan could be ideal for you if your answer is ‘yes’ to the above questions.

How Can You Apply?

Cash flow lending is becoming growingly popular among businesses, as it helps owners make the most of a new business opportunity or manage their cash flow cycle.

To know more about cash flow loans and if you are eligible for it, or explore the business financing options available for you, talk to our mortgage experts today.

Typical Uses For a Cash Flow Loan

If you consider the ease and speed of receiving a cash flow loan, you can see why they are becoming growingly popular among small businesses. So where can you use  this loan? It could assist you:

  • Receive working capital to make payments of suppliers while you wait for payments from customers
  • Purchase discounted inventory available for a short period
  • Hire new staff to meet the requirements of your growing business
  • Purchase stock to prepare for seasonal demand, for example, before the Christmas shopping season
  • Build an online marketing campaign to grow your business.

Remember that this kind of loan is not used to make huge purchases, like commercial property.

Limitations of Cash Flow Lending For Businesses

Though cash flow loans give the type of quick capital injection that can be important for businesses in their unfortunate circumstances, it’s essential to remember that there are some limitations linked with them:

  1. High fees – Together with high interest rates, cash flow loans generally involve very high fees, also considerable penalties for late payments. Before seeking out a cash flow loan, it’s important to consider whether you have the capacity to pay these fees if you miss one of your due payments.
  1. Personal guarantees – Though you don’t require assets to compensate for a cash flow loan, lenders may put a general claim over your whole business as a clause of the loan agreement. It means that your business itself will act as a collateral. Additionally, you may have to sign a personal guarantee for the loan, which would make you directly responsible for repaying it.
  1. Automatic payments – Some lenders will need automatic payments as a condition of the loan. For businesses whose cash flow differs every month, automatic payments could mean that you may not have sufficient money in your business account to make the payment.

Points to Remember About Cash Flow Lending

There is more risk for the lender as cash flow loans are not secured. Higher risk refers to a higher interest rate. Although the interest rate can be higher, there are short-term loans (6 months to 24 months), so the total amount of interest paid can be less than compared with a long-term traditional bank loan.

Even though a cash flow loan is not protected with collateral, your assets will be at risk if you are unable to repay the loan.

Contact our mortgage experts at APW Finance to help you get flexible loan options and the best deals that can assist you in growing and upgrading your business.

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