Borrowing from the bank can help the business to purchase stock, get business premises set up or set up an online presence. Whatever industry you're in, an injection of cash can really help a business to get on their way to becoming a profitable company.

When businesses are smaller, they don't tend to have a lot of assets to secure a loan against. That's where cash flow loans can really help.

What is cash flow lending?

Cash flow lending is when a company borrows against prospected revenue. The loan is used to pay off what they need now and is paid back based on any profits generated in the future. Due to the fact there is no collateral, such as business assets, a cash flow loan is essentially an unsecured loan.

When might a cash flow loan be right for you?

Typically, a cash flow loan is suitable for businesses who don't have many assets to secure a loan against. It could mean that you don't have business premises because your business is predominantly online, or you work remotely. Alternatively, you may be a relatively new company and haven't built up as many assets yet.

In addition to this, a cash flow loan may be suitable if you need money quickly but don't currently have the finances. For example, you may need to pay staff or a supplier but you're waiting for a client to pay their bill. In this instance a cash flow loan can help to bridge the gap until you have the means to pay it back.

Managing the cash flow

It's quite common for businesses, especially smaller businesses, to run out of cash at certain points. Particularly, if you are a seasonable business where cash flow is relatively uneven at different points during the year.

A loan is usually granted if the projected forecasts show that revenue is anticipated to come in. This is normally based on previous sales and business performance over time. It will take into account business earnings before interest, taxes, depreciation and amortisation.

Finding the best solution for your business

Keeping cash flow healthy can be integral to keeping the business running.

Cash flow loans are designed to help small businesses get an injection of cash when they need it the most. It can help to match fluctuations in cash flow to keep things balanced.

Cash flow loans are more attractive for a short-term situation because of their higher interest rates. But, as an unsecured loan, it means your assets are not at risk if you are not able to pay back the loan. Repayments can vary from around 1 month to 6 months to a year, depending on the lender and the businesses credit rating.

Whilst cash flow loans may not be right for every kind of business, they can provide a short-term and much needed solution for smaller businesses. There is also likely to be a personal guarantee from a business owner. If you're looking for a loan to improve your cash flow then make sure you compare lenders to find the right solution for you and your business.