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Published 04 May 2022

Cash Flow Loans: What Are They and How To Get One

If your business needs an immediate injection of funds, one potential option is a cash flow loan. They are quick to obtain, and don’t require any assets or collateral. However, they do come with higher interest rates and a short repayment window. Find out everything you need to know below.

Cash flow is what makes your business tick. But cash isn’t always flowing in the right direction. Whether it is due to seasonal trading, unexpected bills, or increased hiring costs, you may find yourself short of the money you need to cover your day-to-day operations.

A cash flow loan can act as a short-term solution to this problem, providing an injection of funds to help with your business costs during periods of inconsistent trading.

Read on below for our guide to cash flow loans, including what you can use them for, their pros and cons, and how to apply for one.

» MORE: Four steps to make a cash flow forecast for your business

What is a cash flow loan and how do they work?

In many ways, a cash flow loan works like any other loan. You borrow the amount you need to cover your costs, and then you repay that sum, with interest.

However, they can differ from traditional, long-term business loans in a number of important ways:

What can I use a cash flow loan for?

There are a range of reasons why your business may need to consider a cash flow loan. These include:

What are the advantages and disadvantages of a cash flow loan?

For businesses with immediate money problems, but lacking a substantial credit history or the assets required for a secured loan, cash flow loans have certain benefits.

But, as with all forms of lending, it is vital that you pay attention to the potential drawbacks of cash flow loans before applying.

Other types of cash flow lending

Alongside unsecured cash flow business loans, there are three other main types of cash flow finance.

Merchant cash advance

If your business frequently receives debit and credit card payments from your customers, then you could look into a merchant cash advance.

You would receive a lump sum payment from the lender, who will then be repaid through a pre-agreed percentage of your future debit and credit card transactions until the amount borrowed is cleared.

Revolving credit facility

If you want greater flexibility with your borrowing, then a revolving credit facility might be the right fit for your business.

It is a form of business credit line, and allows you to withdraw and repay funds as and when you want for the length of your agreement.

Say you had a maximum limit of £10,000. You borrow £2,000 from that amount, to be repaid over three months. You will only pay interest on the £2,000 you have taken out. Once that sum is completely cleared, you will again have access to the full £10,000, as long as you are still within the agreed borrowing period.

Invoice finance

If your business involves regularly invoicing clients, then you may want to consider invoice financing. This is where you borrow money against your unpaid invoices.

There are two main types of invoice financing: invoice factoring gives your lender control over chasing your clients for payments, while invoice discounting leaves that job up to you.

How can I apply for a cash flow loan?

When looking to apply for a cash flow loan, you will likely need to provide the following information:

This will help the lender assess your eligibility, and whether or not you are suitable for a cash flow loan.

You will then need to follow the specific application instructions of your chosen lender.

Image source: Getty Images

About the Author

Connor Campbell

Connor is a writer and spokesperson for NerdWallet. Previously at Spreadex, his market commentary has been quoted in the likes of the BBC, The Guardian, Evening Standard, Reuters and The…

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