It’s an open secret. Poor cash flow is one of the top reasons why small businesses in Australia fail. Since the pandemic, business owners have had to dip into their cash reserves more often to meet working capital requirements.

This often trips them up when customers delay payments and there’s inventory to be ordered, for example. When faced with such situations, it is imperative for business owners to have immediate access to credit.

This is not always the case, though. With banks tightening credit checks, it can take two weeks or more for a business loan application to be approved.Thankfully, there’s an alternative - cash flow lending

Cash Flow Lending Explained

Most cash flow lending solutions are short-term loans given on the basis of thefuture revenue potential of a business. However, you can also opt for a Business Line of Credit, depending on your needs.

Here’s how the two differ:

Short-term Loans:

As the name suggests, short-term cash flow loans have short repayment durations of up to 18 months.They are disbursed as a lump sum. Interest rates can vary from 5% to 25%. They come in both secured and unsecured variants.

Business Line of Credit:

A Business Line of Credit allows you to utilise funds on an on-going basisand pay interest only on the amount used. Any repayments you make will increase the credit you have available. Interest rates can vary from 5% to 12%, depending on whether it is collateral-based.

Short term cash flow loansare designed to help entrepreneurs plugcash shortfalls in the short term, for example, during peak season.On the other hand, business lines of credit provide flexible funding for businesses, especially those that are just starting out.

As theircash position improves, the borrower repays the loan over the course of a few years. Most cash flow loans have repayment period of three to five years.

As you might imagine, cash flow lendingcan be used to meet a variety of business needs including expanding operations, buying machinery, paying wages and more. With it, you can offer better credit terms to clients than the competition and win more business.

 

How are Smart cash flow loans different from traditional business loans?

Smart cash flow loans are perfect for small business owners who would not otherwise qualify for a traditional business loan.They enjoy distinct advantages over traditional loans. Here’s how:

No need for collateral:

Smart cash flow lending is collateral-free. In other words, lenders will take into consideration your ability to generate cash flowwhen reviewing your loan application and not how much collateral you have. Traditional business loans are collateral-based and approval depends on you meeting specific criteria.

Simplified application process:

All you have to do is fill out an online application form and upload the required documents to set the process into motion.

Faster approval:

Since there is no collateral involved, approval is much quicker than if you applied for a traditional business loan. This is because lenders offering smart cash flow loans use alternate credit scoring methods to evaluate applicants with a less than average credit history.

This includes analysing data such asbanking history, balance sheet, sales and revenue, routine expenses, among others.In most cases, you’ll hear back in as little as 24 hours.

Less emphasis on credit:

Compared to traditional business loans, cash flow financing does not focus too much on credit score. Lenders decide whether to lend based on past performance and future growth projections. So, if you have been turned down for poor credit earlier, you’re back in the reckoning.

 

Advantages of Smart Cash Flow Loans

Ideal for startups:

Most banks will have specific criteria for lending to startups that have been in business for less than a year. Chances are that your application may be declined, if you do not meet some of them.

However, over the years, a number of non-bank lenders have entered the market, tipping the scale in favour of cash-starved entrepreneurs. If you can demonstrate that your business has reasonably good cash flow, you can certainly qualify for a cash flow loan.

Competitive interest rates: 

It is a fact that non-collateral cash flow loans have a higher interest rate. However, you can certainly find cheaper options with a little bit of online research or by working with a broker. The Australian government also provides credit guarantees to boost the availability of credit to qualifying small businesses. All of these factors can help you get a better deal than you might have thought possible.

No pre-payment penalties:

Paying down a loan ahead of schedule can save you thousands of dollars in interest. So, if you have extra cash, you can prepay the loan without penalty. Most non-bank lenders will not charge pre-payment penalties.

Finding the right cash flow loan provider that meets your specific needs is half the battle won. At Capital Boost, we make it easy for businesses to access affordable financing. Visit us at www.capitalboost.com.au for more information.

 

Tags: Cash Flow, Cashflow loans, Cashflow lending, Cashflow Tips, Business Lending

 

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