Also referred to as cash flow funding or financing, a cash flow loan might just be what you need to keep your business going or take it to the next level. In this read, we’re going to help you understand what cash flow financing and capital loan is, the different types, and the benefits, all with the aim of helping you make an informed decision.
What is a Cash Flow Loan?
Typically utilized for working capital, a cash flow loan is a form of debt financing that allows businesses to borrow funds against the revenue they expect to earn in the near future. This form of financing is prompt to fund and provides the capital you need to fill cash flow gaps.
No matter how it’s used, a cash flow loan is designed to be repaid after a short period of time or refinanced. Since cash flow funding is an umbrella term for many funding programs, the qualification factors can vary widely. However, companies with strong sales have higher chances of qualifying for a cash flow loan.
The Different Types of Cash Flow Loans
Business Line of Credit
Often seen similar to a business credit card, this form of cash flow financing provides higher limits. A business line of credit is a flexible financing solution that’s ideal for when your needs are changing. It lets you withdraw money on a need basis, and only pay interest on the funds that you borrow.
Similar to a credit card, the money available replenishes with every payment you make.
Merchant Cash Advance
A merchant cash advance or MCA, technically is not a loan. In an MCA agreement, the lender gives you a set amount of cash upfront (based on future earnings). In turn, you repay the amount with a percentage of your sales in addition to any financing fees. One of the best things about a merchant cash advance can get approved within 24 hours.
Business Term Loans
These are a one-time capital infusion that’s to be paid over an agreed-upon period. Business term loans are usually used for long-term investments such as debt restructuring, commercial real estate, and large equipment purchases.
Short Term Loans
Just like standard term loans, this form of cash flow funding is smaller in scale and features a shorter repayment period. Short-term loans are usually repaid in 18 months or less.
What are the Benefits of Cash Flow Loans?
As with any financing product, cash flow loans have their fair share of benefits.
Helps You Grow Your Business
By applying for a cash flow loan, you can use the money to invest in projects with a direct effect on your business growth. If you are in the startup stage and want to expand to new locations or increase your products or services, then cash flow funding can be a beneficial solution.
No Need for Collateral
Most lenders providing cash flow loan solutions do not need collateral. This means you do not have to risk losing a valuable asset. As such, the funding is considered an unsecured loan.
Many Options to Pick From
There are many types of cash flow loans available to pick from, allowing you to choose the best one for your business needs. Examples were discussed in detail earlier.
Once the lender approves your cash flow loan application, you can get the money quickly, usually between 24 hours and a few business days. The duration for money to reflect in your account mostly depends on the type of lender.
As you can see, cash flow loans have a lot of appealing benefits. However, keep in mind that a good credit score, proof of cash inflows, and a strong history of sales may be needed to secure one.