Cash Flow Lending: How can I secure a cash flow loan?
What is Debtor Finance?
Debtor financing (also known as invoice financing) is a way for businesses to borrow money against the amounts due from customers. This advance can be used to improve cash flow, pay employees and suppliers, and reinvest in operations and growth earlier than they could if they had to wait until their customers paid their balances in full.
Growing businesses with extended cash cycles and directors that want to keep business and personal matters separate can benefit most from this type of finance. Instead of getting finance secured to your property, you’re able to secure against your invoices to gain access to funds that help manage cash flow, fund expansion or take advantage of key investment opportunities.
Could trade finance be more suited to your needs?
Trade finance provides you with fast funding for stock, inventory and raw materials, so you don’t have to turn away new orders. This type of financing allows you to use a revolving line of credit to pay your overseas or local suppliers when you need it, in almost any currency. Trade finance can be facilitated with TT (telegraphic transfer), Letters of Credit or Documents against Payment.
How will my business be assessed for a cash flow loan?
Although lenders take into consideration your credit score, they’re often much more focused on your cash flow and the cash flow generation capacity of the business.
The capacity of your business is based on a few factors, including:
- Bank statements and/or credit card processing transactions
- Frequency and volume of transactions
- Seasonal sales
- Returning customer revenue
- Customer reviews
As it often is with an unsecured loan, the cash flow loan attracts higher interest rates. This compensates for the high risk of loan default. Depending on your lender, you might repay the loan in anywhere from six months to a year and a half.
Financing your business
Invest time into your business finances. Our business finance guide unpacks everything you need to know about financing your business.