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Understanding cashflow finance within your business

by John Saunders
7th Mar 22 1:42 pm

Managing your personal finances might seem easy compared to maintaining your business one. If faced with a car that won’t start, you might look at payday loans from Quidmarket to see you through the emergency. But when it comes to financing your business, your options are slightly different, and you still want to be prepared for anything life throws at you. One form of financing is cash flow financing. Find out more below and get a real understanding of cash flow finance within your business.

What is it?

Cash flow is the amount of money that goes through your business during a certain time. So, if you want to look at borrowing from a lender, they can look at your cash flow. This allows them to calculate how you’ll pay back the loan based on this number, rather than things like your credit score or overall profit.

Who is it useful for?

When applying for finance, some lenders will require you to opt for a secured loan meaning you’ll have to use assets as collateral. However, if a business doesn’t have this but does have a decent amount of sales, opting for cash flow finance can be more beneficial. For example, if you’re a small company that has a lot of customers but doesn’t have a large premise to work from, cash flow financing will allow you to access funding without having to worry about coming up with collateral. However, this means that if you’re unable to repay your loan then you might be charged fees so make sure you check out the lender’s terms before committing to the finance.

How long does it take?

Typically opting for cash flow financing is a lot quicker than a standard loan and it’s normally for a shorter period of time too. You will still need to provide information about your business when applying, but there might be more focus on your cash flow rather than your profit or expenses. Some lenders may also require a personal guarantee when applying as cash flow finance doesn’t use business collateral. Though they aren’t a long-term solution, they can help you when you need them most.

Why does it work?

In general, if a business has a steady cash flow, this demonstrates to the lender that realistically you’ll have enough to pay back any repayments at the end of each month. Having a high cash flow can also mean the lender may give you a higher credit limit as it shows you have good affordability. Using cash flow financing is a way to essentially borrow against your future income before it’s received, and then pay it back monthly using the same flow. This way you can finance your business without taking out a large business loan.

Cash flow financing is another way to help business owners and takes different things into consideration compared to other types of finance. So, if you’re thinking of giving cash flow financing a go to inject some funds into your business, make sure you do plenty of research on the lenders out there. Don’t be afraid to ask questions and check all the terms and conditions before committing so you can feel secure in your decision and fund your business the right way.

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