How to Use a Cash Flow Loan

Every business needs positive cash flow to remain viable. Positive cash flow is like electricity—with it you have power: no available cash, no available power.

What is a Cash Flow Loan?

Simply put, it is short-term debt financing which a lender provides, based on the expected cash flow of a business. Collateral for the loan may be based on either the full enterprise value of the business or based on the asset value of the business, including buildings, machinery and inventory.

How is a Cash Flow Loan Used?

It is used when a business professional sees the need to improve a company’s financial condition with an infusion of added cash. If the company is experiencing short-term difficulty paying operating expenses or hasn’t achieved stability in its revenue streams, a loan may help keep a company operating. The loan may generally be used to pay any current operating costs. Additionally, a loan may be used to take advantage of high ROI opportunities or to purchase highly discounted inventory.

Before You Sign the Loan Papers

  • Carefully and in advance forecast your revenues and current expenses. This is no time for a ‘back of the napkin’ calculation.
  • Anticipate any potential near-term cash crunches.
  • Clearly understand the terms and fees required. If the lender can’t or won’t be open and explicit with you, go somewhere else. Do not settle for a bad deal or a poorly defined deal.
  • Know the annual percentage rate applied to the loan and know the terms of collateral and repayment.

What Happens Next?

First of all, make sure you meet all the loan terms and develop an excellent payment history that will help you in accessing future loans of all types. Next, don’t be overly aggressive in maxing out loan uses. Lastly, develop an excellent relationship with the lender.

Choose an Expert Lending Source 

Contact Fintrus, an experienced professional financing partner who understands your needs and will guide you in the right direction with customized solutions.

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