What you need to know about cash flow lending in 2022
By Daniel Goldberg|
February 10, 2022
Whether you find your business in a post-season slump or struggling to get a consistent influx of cash due to the ongoing and unstable landscape of a world dealing with COVID, the answer to ease your stress could be cash flow lending. This type of loan allows small businesses to borrow money based on their projected future cash flows and is used to cover day-to-day operations.
What is cash flow lending exactly?
In short, cash flow lending more often than not comes in the form of a short-term loan from a credit provider to a business owner in need of a quick injection of cash, for the purposes of primary business functions. This could be to pay salaries, cover rent of buildings or the acquiring of equipment for new business opportunities, and while not limited to these examples, a cash flow loan will usually come into play when time is of the essence and perhaps the business doesn’t have sufficient collateral or track record to get a loan from the bank (not an uncommon situation for most small businesses), and not if a company finds itself in serious financial circumstances.
How is a cash flow loan different to a traditional bank loan?
In addition to prerequisite lending criteria, such as business plans and the investigating of cash flow statements, traditional bank loans will also usually rely on securing the loan with an asset (“collateral”).
While the business itself may have the assets to put against the loan, many small business owners don’t have the scale of assets at their disposal and put up personal items such as vehicles or family homes – which can put businesses as well as families at serious risk.
A byproduct of the procedures and certainly the more obvious difference between a traditional bank loan and a cash flow loan is time.
In almost every instance, the traditional route will take much longer to process and in the small business world, where time is the second biggest commodity, business owners can’t afford to wait.
Small businesses need cash flow boosts fast – and without the miles of red tape associated with bank loans.
Bridgement’s Line of Credit solution
The Bridgement Business Line of Credit facility offers ongoing access to flexible funds allowing small businesses to manage cash flow changes with confidence.
With access to a credit facility of up to R5,000,000, small businesses can spend less time applying for finance and access their funds in mere minutes as well as 24/7. Understanding the true cost of the loan is simple with clear and transparent pricing along with early settlement discounts affording owners the opportunity to save on their business funding costs.
Small business owners can also use a flexible cash flow loan to enhance the working capital of the business to cover ongoing expenses, but there is a notable difference between cash flow and working capital that should be taken into account.
What is the difference between cash flow and working capital?
Where a business’s cash flow projects all income and expenses over a defined period of time, working capital offers a snapshot of a company’s current ability to pay its most immediate debts.
One can think of it as micro and macro levels of detail with cash flow giving the scope of present inflows and outflows.
Look out for an upcoming article where we’ll dive into the details of working capital and how it can be effectively managed with help from the right partner.
At Bridgement, we endeavour to make the running of a business, your business, possible.
We’re here to help you make a success of your business by providing insight and understanding to a complex landscape and offering much-needed funding to make that success a possibility.
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