Cash flow is the lifeblood of any business.
Even the most profitable and fastest-growing company will quickly find itself in trouble if it can’t pay its staff, rent or bills.
So, when the long-term prospects look good but short-term finances are rocky, you may find yourself needing a cash flow loan.
But what exactly does this involve?
How cash flow loans work
Cash flow loans exist to get you over a hump in your company’s finances, so they are intended to be paid back fairly quickly.
Typically, you’ll be looking at about six months, though in some cases this could be as short as 30 days. Because the sums involved usually aren’t huge, and the loan term doesn’t extend across a number of years, the application process should be quick and straightforward compared to a bank loan.
In fact, you should be able to apply online and may receive a same-day decision, with the money following shortly afterwards.
How much you can borrow will vary from lender to lender, and of course will depend on your financial circumstances. In theory, this could be anything from a few thousand pounds up to a few hundred thousand, though most cash flow loans are at the lower end of this scale.
The kind of businesses that can really benefit from cash flow loans
Cash flow loans aren’t really suitable for start-ups: they will need more structured finance, with a longer repayment period, to get them off the ground.
In any case, some lenders will be reluctant to deal with brand-new businesses as they will want to look at accounts and trading history before committing to lend.
But if you’re established and profitable, yet struggling to deal with late-paying clients or facing a large unexpected bill, a cash flow loan can come to the rescue.
Are there any disadvantages to cash flow loans?
Cash flow loans are relatively fast and easy to obtain, and because repayment is made quickly you’re unlikely to face a huge amount of interest.
However, depending on the lender, the interest rate is likely to be comparatively high the lender has to make a profit and the loan is unsecured so it can be fairly risky to them.
Make sure you understand exactly how much the loan will cost you. If the lender offers you a flat interest rate or charges the loan by way of a factor rate, don’t forget to request the APR so you can make direct and meaningful comparisons.
Don’t forget to talk to Cashsolv
It’s always good to shop around when seeking a loan, as different lenders will have different criteria and offer varying terms and interest rates.
You should start by talking to Cashsolv. We’re the specialists in small business finance, and are completely transparent in our approach to give the funds you need to get ahead.