Types of Cash Flow Financing

Cash Flow Finance is that measure of funds flowing through a company. The more money that flows through the company, the better its profit margin will be. Cash is essential for any business. Without it, money cannot be managed, collected, invested, or replenished. Businesses need cash flow that can be obtained by taking advantage of various options.

cash flow finance

Long Term Debt Accounts Payable: This is one of the most commonly used forms of cash flow finance. Cash is borrowed to invest for the short term. The return on the capital will determine how much is repaid over some time. This type of financing is prevalent with long-term debts.

Short Term Loans: These loans are made to small businesses that may need them within a short period. The property usually secures these types of loans. If a borrower defaults on a loan, the lender can sell the property to recoup his losses. These short-term loans can range from one month to ninety days. Most small businesses take advantage of these loans to obtain the cash they need for their start-up and expansion needs.

Accounts Receivable: Accounts receivable represent the future cash flows from customers. These customers pay for products or services and expect their payments to be received within a specific period. The amount of money collected from accounts receivable depends on several factors, including the duration of time the customer has agreed to pay, the frequency of payment, and the amount that was initially owed. Typically, this type of business finance is used for short-term cash needs.

Lines Of Credit: A line of credit is a type of short-term unsecured loan. When you apply for a line of credit, you are generally required to make a down payment. This will be your initial cash flow loan. In return, you will receive a specified amount of credit against your default account balance. You must pay off your account before your line of credit expires.

Long-Term Loans: Long-term cash flow finance typically makes up most of the market for unsecured business finance. Most borrowers obtain long-term loans to invest in equipment or property that will generate a higher return over a more extended period. Typically, a long-term loan is obtained to purchase raw materials, outfit existing production facilities, or purchase additional plants and equipment to grow the business. Lenders charge higher interest rates on these types of loans, but you have a lower risk of defaulting on the loan.

Cash Flow Trades: Cash flow trades are another option for a business owner seeking an unsecured credit line. Cash flow trades are similar to those obtained with secured loans, but the difference is that you do not need to provide collateral to secure the loan. Instead, you can get a non-secured trade and pay it back in installments, like you would with a secured loan. To qualify for a cash flow trade, you must have a current financial account to receive regular payments.

Regardless of which form of cash flow finance you choose, you must take steps to ensure that you always have enough collateral to support the debt. If you are working with a private lender, it is essential to provide a significant amount of tangible personal property as collateral for the loan. Lenders also prefer working with business owners who can give sufficient real property (e.g., vehicle) collateral for a loan. When working with private lenders, it is essential to note that the repayment terms often significantly negatively impact the cash you will initially receive.