The term “cash flow loan” may be used to describe two different types of financing:
- A loan for cash flow purposes.
- A loan that’s collateralized or repaid by cash flow.
Loans for cash flow purposes help businesses manage their inflows and outflows of cash and prevent cash shortfalls. A cash flow loan can be used as a source of funds to purchase inventory, equipment or materials, pay business expenses, refinance other loans or as working capital for general business purposes.
A cash flow loan can help a business manage through temporary rough times when cash flows might be disrupted, perhaps because customers haven’t yet paid for products or services they’ve received. Rather than panic if a cash shortfall is imminent, the owner can use the loan to tide the business over, paying bills that are due on time until more cash comes in.
Loans that are backed or repaid by cash flow give businesses access to capital they need and otherwise might not be able to get.
Cash flow loans typically are short-term financing. Terms of six, nine or twelve months are more common than terms of longer than one year.
A short-term business loan for cash-flow purposes might require daily, weekly or monthly payments until the term is up.
These type of loans tend to have high interest rates. Business owners should shop around and compare the rates and terms different lenders offer.
To qualify for these loans, you need to be in business at least six months but 1 year is more desirable. You need to be generating at least $10,000 a month in revenue. The better your personal credit, the better the rate. The lender will want to see at least 4 months bank statements and might require a current P&L Statement and Balance Sheet. They might also ask for corporate and personal tax returns depending on the loan amount and how long you have been in business.