Cash Flow Lenders, Cash Flow Lending and Temporary Cash Flow Loans
All businesses worry about cash flow. From the biggest corporation to the smallest startup, knowing you have enough cash on hand is a vital part of being able to run your company efficiently. Working capital, to put it plainly, is your currents assets minus your current liabilities. Maintaining a comfortable working capital ratio is important to a business for multiple reasons.
- Having the cash on hand to repair or replace business equipment.
- Being able to bring in new staff when needed
- Being prepared for time-sensitive business opportunities and other unexpected expenses
If you’re low on operating cash flow, there are several solutions to your working capital needs; one being a cash flow loan.
Whenever businesses begin to consider cash flow loans, there are typically two financing options for securing working capital: cash flow loans or asset-based loans.
How Cash Flow Financing Works
When a financial institution approves funding, it is backed by the recipient’s personal or business cash flows. What this means, is that a funding company is purchasing future -over a specified period of time – is paid out by the funding company. This purchase is then repaid by the recipient over the course of 3 to 12 months.
The process traditional banking institutions use to underwrite cash flow-based loans tends to be long and cumbersome. In an effort to determine credit capacity, typically, they will use earnings before interest, taxes, depreciation, and amortization (EBITDA) along with a credit multiplier to calculate this figure.
This financing method enables lenders to account for any risk brought on by sector and economic cycles. For instance, during an economic downturn, many companies will see a decline in their EBITDA, while the risk multiplier used by the bank will also decline. The combination of these two declining numbers will reduce the available credit capacity for an organization, thus limiting the amount of working capital they can receive.
Cash-flow loans and temporary cash-flow loans from traditional banking institutions are better suited for companies that maintain high margins on their balance sheets or hold significant assets to offer as collateral.
Traditional lenders deem businesses as “risky” if they have poor or bad credit. These businesses will find better consideration with online business financing sources. However, borrowers may want to carefully consider the types of funding they need and the lenders with whom they are contemplating doing business.
In addition to historic cash flow, credit ratings are also used in this form of financing. The advantage to this method is that a company can obtain financing much faster, sometimes in as little as 24 hours.
What Else You Should Know About Cash Flow Loans
If you are exploring cash flow lending or a temporary cash-flow loan, here are a few things for you to keep in mind:
- Indirect Lender:
When you apply for cash advance lending, you may not realize that you are not directly dealing with the funder, but with a middleman commonly referred to as a “broker” or “lead generator.”This broker is an indirect lender; they forward applications to multiple lenders in hopes of finding the best possible cash-flow loans.
- Direct Lender:
Unlike the Indirect Lender, a Direct Lender eliminates the ‘middleman’ and their additional fees.
- Higher Interest Rates:
The repayment terms can be higher than other financing options.
- Unregulated Industry:
Since the repayment terms are tied to future sales and not a structured repayment schedule, these finances don’t fall under banking regulations.
Choosing a Cash Flow Lender
Interest rates for these types of funds are typically higher than the alternative due to the lack of physical collateral that can be obtained by the lender in the event of default.
You need to research any company with whom you want to do business. Here are some steps we suggest you take:
- Go to the funder’s website. Check out their press room or media room to see how they position themselves to customers, prospects, and partners.
- Look up the company on TrustPilot, Yelp and Glassdoor. Seeing their ratings and reading their client feedback gives you a sense of the kind of company you’d be working with.
- Dig into their reviews on social media. Reviews on Facebook will provide insight into any small business loan company you’re considering.
As always, do your homework and know who you’re dealing with when you look for cash flow lending through a traditional banking institution.
When running a small business, unforeseen circumstances can lead to unexpected expenses. A business cash-flow lender like Fast Capital 360 can help provide capital for those times when an extra influx is needed. To alleviate cash flow lenders issues, Fast Capital 360 funding can be used to provide temporary cash to keep your business operational. Fast Capital 360 is proud to provide cash-flow financing to small businesses across the U.S.