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Cash Flow Loans: The Ultimate Guide

You can use your future revenues to obtain cash flow loans.

Table of Contents

  • What Are Cash Flow Loans?
  • How Are Cash Flow Loans Used?
  • Cash Flow Loans vs. Traditional Asset-Based Loans
  • 4 Types of Cash Flow Financing
  • Who Qualifies for a Cash Flow Loan
  • How to Apply for Cash Flow Loans

When businesses need funds, securing working capital as quickly as possible is crucial. In this guide, we’ll review the basics of cash flow loans, how the operating cash flow formula affects your offers and everything in between.

What Are Cash Flow Loans?

Cash flow loans allow you to borrow funds against revenues you expect to earn in the future. These programs are quick-to-fund and provide working capital to businesses looking to bolster their cash flow.   

Regardless of how it will be used, cash flow loans are designed to be repaid quickly or be refinanced. Because a cash flow loan is an umbrella term for multiple funding programs, the factors involved in qualifying for funding can vary. However, businesses with strong sales increase their chances of qualifying for a cash flow loan, even if their personal credit score is at or below 580.

The Impact of the Operating Cash Flow Formula

Operating cash flow is a formula that reveals how much money a company generates—such as what’s earned through manufacturing and the selling of goods or for services rendered. 

Also known as net cash from operating activities, operating cash flow focuses on recurring business activities and doesn’t include one-time expenses such as long-term capital expenses or investment costs.

The operating cash flow formula:

Funds from Operations + Changes in Working Capital = Cash Flow from Operating Activities

Your operating cash flow gives lenders a clearer idea of what they can offer your business. The stronger your operating cash flow, the more likely it is you’ll receive a high principal with lower rates (though underwriters take more than your operating cash flow into consideration). 

How Are Cash Flow Loans Used?

Cash flow loans have a litany of uses, most of which revolve around short-term business solutions.

Increasing Inventory

Cash flow loans are often used to address inventory needs. You can replenish your seasonal reserves, purchase in bulk to secure a discount or account for any holes in your product line. Cash flow loans can also aid businesses looking to secure enough product to fulfill a large, unexpected order.

Upgrading Your Equipment

There’s never a convenient time for an essential piece of equipment to fail. With a cash flow loan, you can gain access to the funds you need to quickly fix or replace this asset. 

Spotty Seasonal Sales

Even when your retail business isn’t busy, bills and other expenses don’t stop. When you need support to get you through the down season, a cash flow loan can sustain your business when sales are down. 

Hiring Additional Employees

As your business needs grow, so does the size of your team. A cash flow loan can help you take on the costs of hiring new employees.

Cash Flow Loans vs. Traditional Asset-Based Loans

Regardless of the type of financing you pursue, underwriters always consider your cash flow. This is not the only way to obtain funds, however. Another common way to secure a loan is by leveraging your assets. 

The greatest differentiator between asset-based loans and cash flow loans is the role collateral plays.


Asset-Based Loans

Asset-based loans are secured by valuables pledged by the business owner. Assets lenders accept as collateral include any income expected from accounts receivable, real estate owned by the company, equipment and inventory. 

Cash Flow Loans

Cash flow-based loans don’t require collateral. This is a great option for younger business or those without much collateral to offer. The tradeoff, however, is that the funds are secured on the expected income of the company and its credit rating along with a personal guarantee from the owner(s). This means that in the event your business is unable to pay the balance of the loan, you will be personally responsible.

Of course, other elements distinguish them.

Processing Time

Asset-Based Loans

Lenders typically take at least 30 days, if not more, to review an applicant’s loan submission. During this time, your lender will be evaluating almost every inch of your business, including your balance sheets, and in some cases, will conduct an on-site audit to examine any physcial assets that will serve as collateral for the loan. 

Cash Flow Loans

With a cash flow loan, on the other hand, you can obtain financing much faster. This is possible due to the way cash flow-based loans are underwritten. Using EBITDA (earnings before interest, taxes, depreciation and amortization) combined with a credit multiplier, lenders can account for any outside uncertainties, along with your own business’s risk. With this information, a cash flow lender can determine the principal and interest rate.


Asset-Based Loans

Payback for asset-based loans comes in the form of weekly or monthly installments. This is determined by a few variables, including loan amount, term length, unique risk factors and overall business preference.

Cash Flow Loans

These programs are also repaid in small increments either through credit card holdbacks or fixed automated payments. Automatic payments are taken from the borrower’s bank account on a daily or weekly basis. With credit card holdbacks, lenders pull a certain percentage of your daily credit card sales. Depending on the lender you work with, you can even choose specific days you pay.

4 Types of Cash Flow Financing

Although there isn’t a single type of cash flow loan, there are a handful of ways you can secure cash flow financing.

Business Line of Credit

Comparable to a business credit card, a business line of credit boasts higher limits with more rigid repayment terms. These financing programs allow you to draw money whenever you need it, while only paying interest on the funds you borrow. 

Loan Amount
Up to $500,000

Estimated Repayment Terms
6 months – 3 years

Interest Rate
Starting @ 8%

Speed of Funding
As fast as 1 day

Merchant Cash Advance

Technically, a merchant cash advance isn’t a loan. An MCA lender provides you with a set amount of cash—based upon future earnings—up front. In exchange, you repay this advance with a percentage of your sales along with any funding fees.

Loan Amount
Up to $500,000

Estimated Repayment Terms
3 – 18 months

Factor Rate
Starting @ 1.14

Speed of Funding
As fast as same day

Business Term Loan

Business term loans are a one-time infusion of capital paid back over a given term. These programs are used for long-term investments including commercial real estate, large equipment purchases and debt restructuring.

Loan Amount
Up to $500,000

Estimated Repayment Terms
1 – 5 Years

Interest Rate
Starting at 7%

Speed of Funding
As fast as 1 day

Short-Term Loans

Similar to traditional term loans, short-term loans are smaller in scale and with a much shorter repayment window. Considering these funds are used for businesses that find themselves with an ad-hoc need, these programs are usually paid off in 18 months or less.

Loan Amount
Up to $500,000

Estimated Repayment Terms
3 – 18 months

Interest Rate
Starting @ 10%

Speed of Funding
As fast as same day

Find the right cash flow options.

Who Qualifies for a Cash Flow Loan

Getting a cash flow loan is financing most businesses can reliably access. Of course, it’s important to understand what does go into a cash flow loan approval.  

Cash Flow Based Underwriting

A lender’s first step in the underwriting process is understanding whether or not your business already has any existing financing. To do this, lenders measure your debt-to-income ratio. DTI gauges your ability to handle additional debt and how efficiently you can repay it. 

DTI = Total of Monthly Debt Payments/Gross Monthly Income

Once they understand your DTI, your lender searches for programs that make sense for what you need. In short, the lower your DTI, the easier it will be for you to receive an approval.

Projected Revenue Growth

Underwriting is primarily based on past performance. This historical information, combined with your intended use of funds, will influence your projected revenue growth, therefore giving your lender a better idea of how much you may qualify for.

Projecting future revenues becomes a bit trickier for seasonal businesses, however. In this scenario, lenders may request financials from the previous year’s payback months (the period of time when you would be repaying your loan) to ensure a busier season is approaching.

Cash Flow Loans for Small Business with Bad Credit

Although bad credit limits program availability, options still exist. As alternative lenders are less risk-averse than traditional funders, they offer working capital to more business owners—including those with poor credit. This is done by evaluating the financial health of a business aside from credit score. If you take measures to improve your credit score, you’ll eventually qualify for more programs.

How to Apply for Cash Flow Loans

Applying for cash flow loans online opens your business to multiple funding options. 

By filling out a few basic questions about your business, you can uncover funding opportunities within a matter of hours. And depending on the funder and type of cash flow loan you pursueyour funds can be deposited into your bank account the day you’re approved.

For example, Fast Capital 360 helps you find the best cash flow business financing options through one straightforward application. While each lender’s application process differs slightly, the fundamentals are the same.

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