What’s A Cash Flow Loan? The Ins And Outs

If you’re having cash flow problems, cash flow loans may be the answer. A cash flow loan is an unsecured business loan for the day-to-day operations of your business. They are typically loans with fast approval and reasonable requirements. So if you need a sudden influx of funds to handle a cash flow hiccup, these are the loans for you.

In this guide, we will get into the ins and outs of a cash flow loan. We will look into their uses and drawbacks to help you determine if it’s a good fit for you and your business.

Why Would You Take Out A Cash Flow Loan?

Cash flow problems can arise from many different circumstances. They can come suddenly, or slowly.

Seasonal Fluctuations

Some businesses are highly seasonal. One month, everything is great and the next month you’re not making quite enough to keep up with your day-to-day expenses.

This is one of the more common reasons to take a cash flow loan. Cash flow loans can help carry you through a temporary downturn in sales. So, they are one of the better options if your business is struggling due to predictable seasonal changes.

Sudden Needs

Let’s say you run a catering service. You have just landed a job for a massive event that you aren’t quite prepared to cater for. You need more supplies, more people, and more money.

Short term cash flow loans are ideal in a situation like this. Because you are borrowing the money to complete an ambitious project, the cash flow loan is safer than it would be in other situations.

Unpaid Invoices

If your customers are slow to pay your invoices, you could find yourself with some cash flow problems. This is another situation where a cash flow loan can hold your business afloat as you await your payments. There are also other options available, such as invoice financing, when you need the money quickly. But some cash flow loan options can effectively plug this hole in your cash flow.

What Kinds Of Cash Flow Loans Can I Take?

A cash flow loan can come in one of many forms. But all cash flow loans must necessarily be:

• Large enough to handle your cash flow problems
• Fast enough to allow you to cover day-to-day expenses

With that in mind, here are some of the options you can choose to cover cash flow issues.

Business Lines Of Credit

Business lines of credit can serve as the perfect cash flow loans. If you need to finance ongoing expenses, lines of credit are ideal.

With a good line of credit, you can choose to draw however much funding you need. Many lines of credit can have draw periods lasting years. Others may only last a few months. So, you have many options to choose from. Ideally, you can get a line of credit that doesn’t cost much in fees. That way, you will only be charged for the money you choose to draw.

Because of the control they offer you, business lines of credit are ideal cash flow loans.

Short-Term Loan

A short-term business loan can help you fix temporary holes in your cash flow. These simple installment loans allow you to fix your cash flow issues with a sudden influx of cash. As long as you can pay back your loan in good time, these are the simplest loans available to you.

Invoice Factoring

Are customers that are late to pay your invoices causing cash flow issues? If they are, invoice factoring offers you a fast solution that can save your cash flow.

Invoice factoring is effectively just you selling your accounts receivable at a discount. The lender will pay you immediately for an incoming invoice. The downside is of course that you will have to sacrifice a portion of your invoice for this type of cash flow loan. But this option is good at improving your cash flow when customers are being slow to pay.

Invoice Financing

This option is very similar to invoice factoring. The critical difference is who collects the payment once it comes. When you use invoice factoring, the factoring company takes over the collection of your invoice once they pay you for it. 

With invoice financing, you still collect your own invoices. You just have to pay the lender back with interest once your invoice comes in.

Either of these options can be a great benefit for your cash flow. Because about 60% of invoices are paid late, these options are popular remedies.

Last Thoughts On Cash Flow Loans

Any cash flow loan you take should be fast and large enough for you. Fortunately, many loans fit this description.

Try comparing lenders and find the one that best solves your cash flow challenges: