How A Cash Flow Loan Is Different From Conventional Loans

Posted on: 18 August 2018

Cash flow loans are a type of loan in which you borrow based on the cash flow you are expected to have in the future. This is helpful for businesses that have current expenses, but have not received the revenue necessary yet to pay for these expenses. The company might have accounts receivable that have not yet been paid. The lender will be given a right to a portion of the receivables when they are paid.

Cash Flow Loans and Credit Scores

Your credit score will play a role when obtaining a cash flow loan. However, the credit score makes less of a difference with cash flow loans vs. loans that rely solely on your credit. Your company will have financial information that can demonstrate that you will have the revenue necessary to pay off the debt. These types of loans tend to be approved much faster than other types of loans because less needs to be verified. Also, even if you have a bad credit score, you may be able to qualify.

Interest Rates

One of the downsides of a cash flow loan is that you will typically pay higher interest rates. Therefore, if you are able to put something up as collateral, you will not have to pay as much in interest. 

Improving Your Credit Score

If you have bad credit, you can improve your credit score better through a cash flow loan than you can through other sources of financing. However, it's important to make sure to pay the loan off in time.

Factors That Affect Your Cash Flow Loan

There are various aspects of your business that will be used by computer algorithms to determine how much you will be lent. The frequency of your transactions, seasonal sales, expenses, reviews, and returning customers can all play a role in the final offer. Typically, the loan application process will be finished within one to three days. 

Why Cash Flow is So Important

Cash flow is a vital part of a business. A high cash flow will even allow you to make new investments. If you are not able to pay expenses, you may incur fees and your business might grind to a halt. Given how cash flow can be unpredictable, especially when your products might not be sold right away and when you may not be compensated for services right away, it's essential to smooth out your cash flow through loans.

For more information, reach out to companies like Core Financial Incorporated