Cash flow loans are a little-understood subject, but if you’re looking to get your head around this topic, you’ve come to the right place. This article covers the ins and outs of that financing option.

The Basics

Cash flow loans, as explained on Investopedia, are meant to cover immediate expenditures such as rent, payroll, and so on. These loans are not meant to expand growing businesses or rescue struggling businesses. Instead, their purpose is to help relatively strong businesses that are encountering temporary funding issues. They derive their name from the fact that these loans are repaid with money that flows back into the business—that is, the business’s cash flow.

When determining eligibility, lenders look at the strength of a business instead of its assets. These loans are generally short in length.

Advantages of Cash Flow Loans

Several traits make this type of financing attractive to borrowers. These loans are typically unsecured, meaning no collateral is necessary. They are usually designed to be quickly accessible for borrowers, making them ideal for handling immediate needs. That is especially true when they are compared to traditional loans, which usually have a more laborious application process. 

Uses of These Loans

Cash flow loans are very versatile, meaning there are many reasons businesses might seek them out. Some examples include:

  • Pouncing on opportunities, such as buying up needed supplies or equipment at a discount. 
  • Staffing up for an important event or for a busy time of year. 
  • Handling an increase in demand for the business’s goods or services.  

Cash flow loans are probably not the best option for obtaining massive amounts of funding. However, for meeting immediate funding needs and keeping a business running smoothly, they can be an ideal solution.

Want to keep learning about different financing options and other aspects of the business world? Look no further than the rest of Nations Capital Financing’s blog content.