When it comes to business finance, many options are available, and no single solution fits all. If your business needs extra cash to cover the day-to-day running, cash flow lending could be a potential option.
Cash flow lending is a type of unsecured loan. It allows businesses to borrow money based on their expected future cash flows rather than relying on physical assets (such as property or equipment) as security. Generally, a cash flow loan provides working capital to cover expenses such as wages, rent, and stock, for example. Your business’s incoming cash flows pay it back, so your business’s capacity to generate cash flows is the primary determinant of your eligibility for a loan.
Short-term loans designed to cover immediate operational expenses such as payroll, rent, and utilities.
Uses outstanding invoices (or payment applications) as collateral to secure funding. The lender advances a percentage of the invoice value upfront, which the business repays once the customer pays the invoice.
Flexible credit lines that businesses can draw upon as needed, repaying the drawn amount and then borrowing again as required.
An unsecured loan where repayment is tied to a percentage of future credit card sales.
Here are some common scenarios where cash flow lending might be the right solution for your business.
If your business is growing rapidly, you may not have the funds to meet the financial demands. For example, if you’re taking on new contracts, expanding into new markets, or scaling your operations, you may need quick access to working capital.
Cash flow lending gives you the agility to respond quickly to opportunities.
If your business doesn’t own premises or expensive equipment, traditional asset-based finance might not be an option. In this instance, cash flow finance could provide the solution to your financing needs if you can demonstrate strong turnover and good profit margins.
If your business is seasonal, such as a tourism-related business, you may have peaks and troughs in income and cash flow. Cash flow lending can help even out your cash flow and cover expenses during quieter months.
If you require short-term financing to cover an unexpected expense, cash flow financing can help bridge the gap. It is often quicker to arrange than a traditional loan, making it ideal when timing is of the essence.
If your business generates a reliable monthly income, even without significant assets, you should be able to obtain a cash flow loan quite easily. Lenders love consistency, and recurring income (such as subscription models, retainer clients, or long-term contracts) gives them confidence.
Not always. As cash flow loans are typically unsecured, they tend to have higher interest rates or shorter terms compared to asset-backed finance. Additionally, cash flow loans often incur high fees and substantial penalties for late payments.
Also, you may be required to sign a personal guarantee for the loan, which would make you personally liable for repaying it.
It’s essential to consult a finance broker or advisor who can evaluate your business and help you understand all your options.
We specialise in finding the right financial solutions for the right businesses. We don’t believe in pushing clients into a funding product simply because it suits the lender. Whether it involves cash flow lending or a different approach altogether, we will help you obtain funding that supports your goals.
Contact us today to discover if cash flow finance could be the right choice for your business.
