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What Is a Cash Flow Loan?

A cash flow loan is a type of borrowing used for a small business’s day-to-day operational cash flow. Small business owners use cash flow loans for various things, including debt financing, stabilizing business bank account balances, covering items like bills and business expenses, making payments for inventory during the busy season, financing projects and payroll, making rent, and other everyday needs. Lenders offer these options so that small business owners can get the cash they require for a wide range of operational costs and provide financial protection.

 

What are the Best Cash Flow Businesses?

Consistent revenue month over month is critical in the eyes of lenders. A small business with consistent sales and deposits is usually deemed to have the best cash flow. Some great examples include restaurants, auto service centers, food markets, and medical practices. However, even these businesses can be cash-strapped at times and might need a cash flow loan. Small businesses of all types often require access to cash flow lending at some point or another.

6 Best Cash Flow Business Loan Options

So, what type of options can you get for cash flow loan financing? Take a look below:

Business Line of Credit for Cash Flow Financing

A line of credit operates similarly to that of a credit card in that you can draw money off the line at any time. You are charged a principal & interest rate, which is cheaper than other loan products and credit cards. The business line of credit does have a max limit based on approval. More documentation is required, and approval is more difficult, but the credit limits are much larger than credit cards.

 

Product Overview

Credit Limits: $10,000 up to $1 million plus
Rates: Interest rates start at prime plus 1% (as of 2020, around 6%)
Payments: Weekly, bi-weekly, and monthly payments available
Fees: Application fee starting at $250
Credit Score Standards: Good to excellent credit required

 

Benefits and Best Uses

Flexibility is the number one reason business owners love business lines of credit. You can draw cash at any time up to your credit limit, and you only pay interest based on your current balance. The rates and fees are also low compared to other asset-based loans and other loan products.

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Short Term Small Business Loans for Cash Flow Financing

Short-term business loans (short-term financing) provide a “lump sum” upfront, with a fixed payback amount over a short, fixed period, typically 6 to 18 months. Short-term loans usually don’t require tax returns or other financial statements, just bank statements and a one-page application.

Short-term business loans are based on a “factor cost,” which is not principal & interest. This is not an unsecured loan and costs more than traditional loans. The good news is that a short-term business loan requires very little paperwork, and credit requirements are much more forgiving than a conventional term loan. You’re also going to find that a short-term small business loan is an excellent cash flow loan option for working capital as it offers quick cash on hand when you’re in a pinch.

 

Product Overview

Rates: Factor rates range from 1.10 up to 1.45
Repayment Terms: 6 to 18-month term loan
Fees: Origination fees 1% up to 5%
Payments: Weekly, bi-weekly, and monthly payments (sometimes daily, M-F)
Credit Score Standards: Poor to excellent credit accepted
Special Features: Funding approval can be same-day to 24 hours

 

Benefits and Best Uses of Short Term Loans

Short-term loans cost more than traditional loans. The rates are higher, terms are shorter, and fees are more, but they can still come in handy for companies that need cash flow loans and can’t get approved for traditional loan products. Short-term loan options offer relief for business owners that may have trouble with bank processes or cash flow lenders that have strict requirements regarding cash flow issues.

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Short Term Business Loans

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Merchant Cash Advances for Cash Flow Financing

Merchant cash advances (known as a purchase of future sales agreements or an MCA) are an advance of a “lump sum” of cash upfront to a business with a discounted purchase price (aka specified amount) to pay back. The merchant cash advance is repaid by having lenders take a fixed percentage of future credit card sales batches until the payback amount is paid back in full. There is no term limit with advances as the fixed back percentage never changes.

The time frame to pay back depends on the volumes of future debit card sales and credit card sales. The only documentation required for an MCA is a one-page application, three months bank statements, and three months merchant processing statements.

An MCA is a sound option for a small business when it comes to cash flow finance options that aren’t too strict. This is an advance of cash flow, not a cash flow loan, so no personal guarantee is required (not personally responsible). Keep in mind; it is not considered asset-based lending either.

 

Product Overview

Rates: 1.15% up to 1.45% factor rates
Repayment Terms: Estimated payback periods are 6 to 18 months with no set term limit
Fees: Origination fees 1% to 3%
Payments: Fixed percentage splits from future credit card batches automatic payments
Credit History: All credit types considered from poor to excellent

 

Benefits and Best Uses of MCAs

An MCA costs more than other options offered by lenders — rates and fees are higher, but repayment flexibility really helps seasonal businesses with fluctuating sales. In addition, the MCA has limited documentation needed. There are no limitations for the use of money, and it can be used for a variety of different purposes, but a majority of money is to establish strong cash flow needs.

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Merchant Cash Advance

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Business Cash Advance for Cash Flow Financing

Business cash advances, also known as a purchase of future sales agreement, are just like an MCA. What is different about a cash advance is that it’s repaid by taking a fixed percentage of expected future cash flows. In contrast, an MCA takes a percentage of future credit card sales. Payments are collected by a fixed daily or weekly payment deducted from a business bank account based on the fixed percentage of future sales. If the fixed payments taken are more than the set percentage of future revenues when the month concludes, a refund to the merchant can occur.

There is no term limit with advances as the fixed payback percentage never changes, but sales do, so there’s no term limit because of that fact. The time frame to pay back depends on the volumes of future overall sales. Business cash advance documentation is limited to a one-page application and three months’ bank statements. When it comes down to business finance, cash flow is highly flexible with a BCA. This is an advance of cash flow, not a cash flow loan. These products are not considered asset-based loans, and no personal guarantee is required.

 

Product Overview

Rates: 1.10% up to 1.45% factor rates 
Repayment Terms: Estimated payback periods are 6 to 18 months with no set term limit
Fees: Origination fees are typically 1% to 3%
Payments: Fixed ACH payments are weekly or daily Monday-Friday 
Credit Score Standards: Poor to excellent is considered

 

Benefits and Best Uses of Business Cash Advance 

Business cash advance costs are higher than traditional loans, but when credit and documentation are an issue. A business cash advance can be a great solution to establish strong cash flow.

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Business Cash Advance

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Invoice Factoring for Cash Flow Financing

Invoice financing, also known as accounts receivable financing or invoice factoring, allows small business owners to access cash quickly. With this product, you receive money from client invoices that would otherwise be sitting for 30, 60, or even 90 days, depending on your invoice terms.

This type of financing allows you to get an advance of up to 95% percent of purchase orders or outstanding invoices from your customers. A finance company will advance a set amount of the unpaid invoice to the invoice owner and then collect directly from the client or customer for the unpaid portion. The credit approval is directed to the customer/client and not the small business owner, so there is little documentation required other than an application, an accounts receivable report, and contact information of the small businesses you invoice regularly. This product is basically just borrowing money based on invoices.

 

Product Overview

Rates: Factor rates are 1.50% to 2.75% of the invoice amount
Fees: Monthly service fees which are based on the number of invoices
Credit Score Standards: Companies that are invoiced will be credit checked; Business owner credit not needed or reviewed.
Documentation: Low documentation requirements; 1-page application, accounts receivable aging report, and client contact information list for all desired advances

 

Benefits and Best Uses of Invoice Factoring

Invoice financing provides money faster than most other loan products, which is usually essential when the demand for funding is from cash flow. The costs are lower than other cash flow loans and require no credit checks of business owners and limited documentation. Invoice factoring is a cash flow lifesaver and the go-to financing product cash flow. The only issue is some businesses don’t qualify because they don’t invoice clients or customers.

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Invoice Factoring

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Business Credit Card

A business credit card functions the same as a personal credit card in that it is a revolving credit line and a plastic card that is issued for use for both purchases and payments. Most businesses use business credit cards in conjunction with other loan products to sustain cash flow demands.

 

A simple one-page application usually conducted online or by phone is all that is typically required from lenders. There are cases that more documentation is needed and requested when looking to borrow more significant amounts of money. Business credit cards are not unsecured loans and require personal guarantees in most cases to obtain financing.  

 

Product Overview

Rates: Interest rates starting at introductory 0% up to 28.99% APR
Repayment Terms: Revolving line of credit with no term limits; Not a term loan 

Fees: No origination fee
Payments: Flexible monthly payments
Credit Score Standards: Must have excellent to good credit with deep credit history
Documentation: No documents required except 1-page application (larger amount requests may require more documentation)  

 

Benefits and Best Uses of Business Credit Cards for Cash Flow

Business credit cards offer flexibility and access to money on demand. Credit cards allow business owners to purchase items and pay bills or invoices to free up short-term cash flow problems; This is very convenient. They’re also great for working capital needs since there are no restrictions on the use of money and no questions asked regarding loan proceeds.

 

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Frequently Asked Questions

All successful businesses must have some type of credit facility available for any cash flow gaps or emergencies that may arise. Industries are ever-changing, and most companies are not spared the occasional cash crunch in their bank account, so having a cash flow loan is essential to a smooth operating business.

The short answer is No. In 2021, there are many financing options and cash flow loans to choose from that can offer funding in a pinch. Even if you have challenging issues such as credit, time in business, and other concerns, you still may be able to find cash flow loans that are a suitable solution.

The key is to get approved for a cash flow loan before you need it. Don’t wait until it’s too late. Have a cash flow loan option available at all times in your business life, ready to go for use. Online lenders like us here at AdvancePoint Capital offer various cash flow lending options, lines of credit, debt financing and working capital options that are perfect for those with less than stellar credit score that need to close that cash flow gap.

Yes, a small business owner can get approved for a cash flow loan with bad credit. Your options may be limited, and how bad your credit is may affect your rates, costs, and terms. Invoice financing does not look at business credit at all, which may be an attractive option if you are the type of company that regularly invoices customers.

Cash flow loans can be forgiving for those struggling with poor credit, but it’s still worth delving into all of your options. The better your credit report, the more cash flow loans you’ll be eligible for from lenders. So, even if you’re struggling with poor credit, it’s still worth investigating if you’re looking for more freedom with online lenders regarding various cash flow loans or working capital loans.

Loans do not count in cash flow because it is not considered revenue or sales from the business.

Advice, Tips, and Warnings About a Cash Flow Loan

Like any business finance product, you must still ask yourself why you need a cash flow loan to fix your company’s issues. Is your cash flow problems short term? Do you need debt financing? Was this a one-time, extenuating circumstance or emergency, or will your cash flow problems continue long term? Will your company always require a credit facility as it’s just the nature of your industry?

Consider the questions above when choosing the cash flow loan solution because the answers to those questions are not the same loan product to solve your cash flow concerns. Work with a cash flow lender with an extensive product line that can offer you as many choices as possible. When looking over cash flow loans, there’s always a solution that will work. As we always say at AdvancePoint Capital: Compare and shop around, and you will always save!

How to Apply for a Cash Flow Loan?

We at AdvancePoint Capital can assist many small business owners in finding the cash flow loans they need. We offer an easy cash flow loan experience that our customers love. Our process is fast and streamlined, with high approval rates depending on how much money you need.

Applying for a loan with AdvancePoint Capital is a simple four-step process. Start with this online lenders form, fill out the short application page, wait a few hours for your approval, and get your cash! We can help you get on the road to solid cash flow right away.

The fast, convenient and straightforward way to get the cash flow loan you need for your small business – now!

Get your quote today by filling out our simple form.