Everything You Need To Know:
What Is A Cash Flow Loan? Cash Flow Loans For Small Businesses
A cash flow loan is a form of unsecured business finance that is used to help businesses manage their cash flow, fund daily operations and finance short-term business ventures. Much like a working capital loan, a cash flow loan helps companies cover their everyday expenses and operations.
Unlike other funding products, lenders offering cash flow loans focus more on business performance and less on credit score, which means far more businesses can qualify and receive finance. As the loan is taken out for the short-term, businesses can benefit from short repayment periods, typically lasting up to one year.
Why Would You Use A Cash Flow Loan?
Cash flow loans benefit businesses that often find themselves in short supply of working capital. For seasonal business, it can be particularly tough to maintain a healthy cash flow during quieter periods. Whilst sales may fluctuate, declining during certain periods through the year, business costs remain consistent. Businesses should consider cash flow loans when in need of an injection of emergency cash.
By preparing cash flow budgets, businesses can plan ahead to help identify their shortfalls and ensure they have enough income in off-peak seasons. For this reason, it’s important that businesses take the time to evaluate their cash flow budget on a regular basis.
10 Cash Flow Loan Uses
- Invest in Inventory & Equipment
- Prepare for Peak Periods
- Hire Additional Staff
- Open A New Location
- Set Up A Business Website
- Manage Cash Flow
- Expand Business Premises
- Pay Unexpected / Late Bills
- Cover Emergencies
- Fund Opportunities For Growth
Cash Flow Finance Products Find The Right Route For Your Business
There are a number of innovative cash flow loan products available to small and medium sized businesses in the UK. When deciding the best product for a business, the business owner should take into consideration their business type, industry and individual circumstances.
Cash Flow Solution 1:
Merchant Cash Advance
At SME Loans we offer a Merchant Cash Advance where businesses can access finance between £5,000 and £500,000. This alternative business funding solution has been designed with small businesses in mind - benefitting pubs, restaurants, retail shops and any business using card terminals.
This funding product is essentially an advance on the revenue your business is predicted to generate through future credit and debit card sales. Relatively new to the finance market, a merchant cash advance is unsecured – which means no security is required through collateral or valuable business assets.
Flexible Repayments > Unlike loans, with a merchant cash advance there are no fixed repayment periods. Because of this, businesses only pay back a percentage of their daily card sales, which means that repayments are always in sync with cash flow.
No APR > APR refers to annual percentage rate, which is the yearly rate charged for borrowing through an investment. Unlike most finance products, with a merchant cash there is no APR charged on the amount borrowed, just one all-inclusive fee.
Cash Flow Solution 2:
Revolving Credit Facilities
Overdrafts are becoming increasingly difficult to secure, so an alternative source is a revolving credit facility. Similar to overdrafts, business owners can access pre-approved funds as and when required. With revolving credit, interest is only charged on the amount withdrawn while it’s outstanding.
This revolving cycle of withdrawing, spending and repaying is short-term and typically limited to a period of 6 months – 1 year. Lenders will typically calculate the loan amount as equivalent to one month of revenue, but once you have made your first repayment you can borrow more.
Despite providing a flexible funding option for businesses, lenders will typically charge higher fees than for other products.
Cash Flow Solution 3:
Short-term Cash Flow Loan
Cash flow loans enable business owners to receive a loaned amount of money in full upfront, paying it back with interest in scheduled monthly repayments over a pre-agreed period. As these loans are short term, the repayment period is usually set between a period of 1 – 3 years, but the amount borrowed will factor into this.
At SME Loans, businesses can receive a cash flow loan between £1,000 and £500,000, and as the loans are unsecured, no security needs to be offered to the lender through collateral. Cash flow loans typically require the business owner to give a personal guarantee when they take out the loan. This guarantee exists to ensure that if the business defaults on loan repayments, the director becomes personally liable for paying back the outstanding funds.