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Cash Flow Loans: The Definitive Guide

Last updated 03/20/2024 by

Jessica Walrack
Does your business need an injection of cash to take advantage of a time-sensitive opportunity or to get through a tough time? Are you wondering if you can get a loan even if you don’t have assets?
Enter cash flow loans. A cash flow loan allows you to borrow without collateral and helps you get the money you need fast.
Plus, there are now many online lenders that make the process easier than ever before. You can get cash in your account after just a few clicks.
But is it the best move for every business? Definitely not. Read this definitive guide to find out everything you need to know about cash flow loans.

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Cash flow loans explained

Loans based on cash flow allow individuals or companies to borrow money based on the projected future cash flows of a company.
So you can borrow money based on the revenues you expect to receive in the future, without collateral. Sounds great, right?
Cash flow loans can be great, but there are a few things you need to know. Here’s a look at the types, costs, pros, cons, and how to find the best cash flow lender for your situation.

Why do companies get cash flow loans?

Cash flow is the net amount of money flowing into and out of a business. Increasing the amount coming in can help a business grow and generate larger returns. It can also help in the case of an emergency.
Here are a few common scenarios which may cause a business to seek out a cash flow loan:
  • Startups may not have enough capital to get the business going.
  • Existing businesses may need to invest in space, employees, or inventory to scale up but don’t have the capital.
  • Businesses may need temporary help to get out of a cash flow crunch, such as when sales recede in a seasonal business.
A loan can help to supplement cash flow when it’s lacking. However, it will cost you, so it’s best if the loan helps you generate incremental income that will cover the costs of borrowing.

SuperMoney may receive compensation from some or all of the companies featured, and the order of results are influenced by advertising bids, with exception for mortgage and home lending related products. Learn more

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Types of cash flow loans

Cash flow loans come in the form of term loans, business lines of credit, invoice financing, and merchant cash advances. Here is a brief description of each type and our top pick for each category.

Lines of credit

Receive an amount of credit from which you can withdraw as needed (like a credit card). Make payments with interest on the amount you have used.

Term loans

Receive a lump sum and repay it with interest according to a set schedule. Shorter term loans are usually easier to get approved for.

Invoice financing

Get paid for your invoices right away and pay the lender back (plus interest) when you get paid.

Merchant cash advances (MCA)

Receive a lump sum upfront and repay it (plus a fee) out of your daily sales.

The right fit depends on your business and preferences. If you need the money upfront and will spend it all right away, a term loan works well. However, if you want access to the money but won’t spend it all at once, a line of credit can decrease the amount you pay in interest.
Further, if your business invoices customers but doesn’t get paid for 30, 60, or 90 days, invoice factoring may resolve cash flow problems caused by the wait.
As for MCAs, if your business processes a large quantity of credit card transactions or transactions through a third-party payment processor, they may be the best choice.
When making your decision, its best to consider all of the options available to you and to compare the features, costs, and benefits of each.

What factors are considered when approving a business for a cash flow loan?

Being that cash flow loans are unsecured, approval for one relies on a business’s historical cash flows, business value, credit capacity, and credit ratings. In short, the lender has to see proof that you will be able to repay the loan.
A company’s earnings before interest, depreciation, amortization, and taxes along with a credit multiplier are used to determine its credit capacity.
Further, some lenders use algorithms which look at factors such as seasonal sales, expenses, transaction frequency, transaction volume, returning customer revenue, personal credit history, and online reviews.

What are the common terms of cash flow loans?

What can you expect from a cash flow loan? Here are the basic terms:
  • Amounts vary greatly from $5,000 up to $1 million.
  • Terms range from one month up to 360 months.
  • Annual percentage rates vary from 5% to +100%.
As you can see, there is a large variation in terms. What you’re able to get will depend on your business and personal creditworthiness. The more established you are, the lower the risk you present and the better rates you will get.

What are high-risk cash flow loans?

Look out for loans with short repayment periods (6 months or less), prepayment penalties, and high costs (over 35% APR). However, if it is your only option and it will result in a substantial increase in revenue, it’s worth considering.

When is a cash flow loan a good idea?

Let’s look at the cash flow loan pros and cons.
Here is a list of the benefits and the drawbacks to consider.
  • Quick access to funds to supplement business cash flow.
  • Fast application, approval, and origination.
  • Many online lenders competing for your business.
  • Competitive rates for those with good credit.
  • Several types of loans on offer to help different business types.
  • High interest rates and fees may apply.
  • A personal guarantee is often required.
  • A general lien can often be put on your business if you default.
  • Can be a slippery slope, difficult to repay on time.

Here’s the bottom line

Will the loan help your business generate an increase in revenue that can cover the loan, its costs, plus some? At the very least, will the loan help you through a tough time so you can float your business back to a place of profitability? If so, it can be a good idea.
But if you have doubts whether a cash flow loan will be enough to get back to a place of profitability, then it’s probably not a good idea.
Cash flow loans are usually best for companies with high margins on their balance sheets or when they lack hard assets which could be used as collateral (marketing firms, service companies, and manufacturers of low-margin products).

What to look for in cash flow loans

If you’re thinking a cash flow loan is right for you, here is what to look for in a lender:

Competitive pricing or structure

You need to find a loan that offers the pricing or structure that best benefits your business. Weigh loan structure flexibility, terms, interest rates, and fees.

Convenience and technology

Consider how easy it is to apply, obtain, and manage the loan.

Underwriting requirements

You will need to find a lender with requirements that match up with your qualifications (credit score, time in business, annual revenue, etc.).

Speed of service

Time is of the essence, check on the decision and funding speed for various lenders.

Customer service

Look for a lender with a reputation for providing quality customer service.
The best cash flow loans are going to have affordable costs and competitive terms and will come from a lender with great service. Check out our top picks below.
Ready to compare cash loan lenders side-by-side to find the best fit for you? Click here!

SuperMoney may receive compensation from some or all of the companies featured, and the order of results are influenced by advertising bids, with exception for mortgage and home lending related products. Learn more

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Jessica Walrack

Jessica Walrack is a personal finance writer at SuperMoney, The Simple Dollar,, Commonbond, Bankrate, NextAdvisor, Guardian, and many others. She specializes in taking personal finance topics like loans, credit cards, and budgeting, and making them accessible and fun.

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