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Discover how a cash flow loan can help your business grow<\/strong><\/p>\n Cash flow loans, sometimes known as working capital loans, can be used to finance growth projects, such as investing in a marketing campaign, product research or hiring salespeople. They can also help businesses tide over cash shortfalls when they\u2019ve maxed out their\u00a0line of credit<\/a>\u00a0due to unexpected challenges related to growth.<\/p>\n \u201cA cash flow loan is a useful financing tool for many entrepreneurs,\u201d says Catherine\u00a0Vanderzwan, a BDC Senior Account Manager in Ottawa. \u201cIt can help protect\u00a0working capital<\/a>, especially for quickly growing companies with large cash outlays or limited assets to offer as loan collateral.\u201d<\/p>\n<\/div>\n<\/div>\n<\/div>\n Vanderzwan explains what entrepreneurs need to know about cash flow loans and how they can help your business.<\/p>\n A cash flow loan is a term loan that doesn\u2019t require any business or personal assets to be given as collateral. Instead, bankers usually grant the loan based primarily on past and forecasted cash flow.<\/p>\n Cash flow loans are usually amortized for a relatively short duration, ranging from four to eight years.<\/p>\n A good rule of thumb is to match financing duration with the lifespan of the project or asset. \u201cI always tell businesses to closely map the inflows and outflows of the company\u2019s revenues and expenses,\u201d Vanderzwan says. \u201cIt\u2019s a good business strategy and helps you understand how money moves through your business.\u201d<\/p>\n Repayment terms can vary, but may include an initial principal postponement, payments tied to cash flow and other flexible terms.<\/p>\n Business owners often make the mistake of paying for growth initiatives with working capital, only to wind up with a cash flow crunch. \u201cYou shouldn\u2019t bury your cash in capital assets or other major investments, when you don\u2019t have a buffer to fall back on,\u201d Vanderzwan says. \u201cThis can lead to major cash flow problems that can be avoided if the business uses financing instead. It\u2019s a common pitfall for many entrepreneurs.\u201d<\/p>\n A cash flow loan may be useful if:<\/p>\n Lenders typically look at the health of your cash flow to gauge if your business qualifies for a cash flow loan and set financing terms.<\/p>\n Since no collateral is being provided, the bank focuses on the quality of your\u00a0accounts receivable<\/a>, accounts payable and inventory turnover to see how you are managing your cash flow. Bankers like to see customers who are of good quality and pay as per their terms, suppliers being paid on time (though not too early) and rapidly moving inventory items.<\/p>\n<\/div>\n<\/div>\n In addition to historic and projected cash flow, bankers also typically check other information such as,\u00a0EBITDA<\/a>, sales forecasts, financial statements, the company\u2019s management team and the owner\u2019s personal credit score and net worth.<\/p>\n \u201cWe\u2019re lending on the cash flow so we really need to understand the cash cycle, business model and the cash needs of any growth component of the business,\u201d Vanderzwan says.<\/p>\n Cash flow loans are similar to other types of unsecured loans such as technology and\u00a0market expansion loans<\/a>, but they differ from these loans in key ways.<\/p>\n\n\n\n\n\n\n\n\n1. How cash flow loans are different<\/h2>\n
2. When is it useful<\/h2>\n
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3. What do you need to qualify<\/h2>\n
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We\u2019re lending on the cash flow so we really need to understand the\u00a0cash cycle, business model and the cash needs<\/span>\u00a0of any growth component of the business.<\/div>\n<\/blockquote>\n\n4. Other similar loans<\/h2>\n