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Cash flow “loans” (also called cash flow facilities) are a broad category of loans designed to bridge the gap between when expenses come due and when revenue is collected.
What Is a Cash Flow Loan?
Unlike asset-based lending, which relies on equipment, inventory, or receivables, cash flow lending is primarily based on your company’s ability to generate steady income.
Businesses often use these facilities to cover:
Weekly payroll Inventory restocking Seasonal expenses New project fundingMost lenders still require a lien or collateral filing, such as a UCC-1 in the U.S. or a PPSA in Canada, to protect their interest. That’s why it’s important to ensure the collateral matches the size of the loan.
Backed by the right financing partner, business loans based on cash flow makes it easier to stay focused on daily operations and long-term growth. That’s where Business Factors & Finance helps you keep the momentum going. Contact us today to explore cash flow loan options.
How Cash Flow Loans Work
Get the Funds You Need, When You Need Them
Getting started with Business Factors is fast and straightforward. Cash flow loans turn your predictable revenue into immediate working capital, so you can cover payroll, manage operations, and seize growth opportunities without delay.
Here's how it works:
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Evaluate Revenue & Cash Flow
Your lender reviews your business’s incoming revenue, recurring payments, and overall cash flow to determine how much funding you can access.
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Establish a Credit Line
Based on your projected cash flow, the lender provides a revolving line of credit or a term loan, often advancing 70%–90% of eligible future revenue.
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Draw Funds as Needed
Tap your available line to cover payroll, inventory, or unexpected expenses, or to invest in growth opportunities.
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Repay & Re-borrow
As revenue comes in, funds are replenished in your credit line, creating a continuous cycle of accessible capital whenever you need it.
Costs and Fees
Understanding the Price of Cash Flow Lending
Business cash flow loans generally cost more than secured options since they’re based on revenue rather than collateral. Lenders typically charge interest and fees such as origination or processing, so clear terms are key to avoiding surprises.
Here’s how different financing options compare to cash flow lending:
How Cash Flow Lending Fees Are Structured
When reviewing costs, it’s important to understand that cash flow loan fees can be applied in different ways. Two common structures are:
- Interest charged on the outstanding balance
- A fixed repayment schedule tied to projected revenue
Here’s a look at how these structures affect the total cost of your cash flow loan.
EXAMPLE 1: Cash Flow Loan Line of Credit
Your business secures a $100,000 line of credit (LOC) with an interest rate of 12.5% and a three-year term. Interest accrues and is payable monthly. Additionally, there is a 0.1% monthly fee on any unused portion of the line.
If you draw $50,000 from the line in the first month, interest for that month would be $520.83 (12.5% annual rate ÷ 12 months × $50,000). The unused portion of the line ($50,000) incurs a $50 monthly unused line fee (0.1% × $50,000).
At the end of the first month:
Interest paid: $520.83 Unused line fee: $50 Total cost for the month: $570.83As you continue to draw funds or repay the line, monthly interest and unused line fees adjust accordingly. This structure gives flexibility: you pay interest only on the portion you use while maintaining access to your full $100,000 line whenever needed.
EXAMPLE 2: Factoring Arrangement
Your business factors a $10,000 invoice with a 96% advance rate, receiving $9,600 upfront, while $400 is held in reserve. The factoring company charges a 2.19% monthly fee ($219), and the arrangement is non-recourse, meaning the business is not responsible if the invoice isn’t collected.
If the invoice is collected after 30 days, the $219 fee is deducted from the reserve, leaving $181 released to the business. Since the arrangement is non-recourse, there are no additional charges even if collection takes longer.
At the end of the first month:
Fees paid: $219 Reserve returned: $181 Total cost for the month: $219Fees may vary depending on the type of factoring, the credit profile of your clients, invoice size, terms, and the number of invoices factored.
Eligibility criteria typically include:
Being in business for at least 6 months Having at least $100,000 in EBITDA Invoices coming from creditworthy clients and not pledged as collateral elsewhereHidden Fees and How to Avoid Them
When comparing cash flow loan options, it’s important to look beyond the headline interest rate. Many agreements include additional costs that may seem small but can significantly increase your borrowing expense over time.
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Origination or Processing Fees
Lenders may charge upfront fees for setting up the loan, which can add to your total cost if not clarified in advance.
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Administrative or Service Fees
Extra charges, such as wire transfer fees, loan servicing, or credit review fees, can accumulate, increasing overall expenses.
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Early Repayment or Long-Term Terms
Some business cash flow loans include long-term commitments or prepayment penalties, making it costly to refinance or repay early.
Practical Tips to Avoid Hidden Fees
To keep borrowing costs under control and get the most value from a cash flow loan, consider these strategies:
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Clarify All Fees Upfront
Ask for a full breakdown of interest, origination, administrative, and any potential prepayment or servicing fees before signing.
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Choose a Transparent Lender
Work with lenders known for clear pricing, fair practices, and positive client reviews to reduce the risk of unexpected costs.
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Monitor Loan Activity and Payments
Keep track of how repayments are applied and ensure your revenue reporting aligns with lender requirements to avoid unnecessary fees or disputes.
Why Your Business Needs Cash Flow Loans
Transform Predictable Income Into Business Momentum
If your business has consistent revenue or recurring cash flow but faces short-term funding gaps, cash flow lending provides the capital to cover expenses, pay employees, and keep operations running smoothly.
Cash flow lending isn’t a last-resort option; it’s a flexible financing solution that leverages your incoming revenue to unlock working capital. Instead of waiting for payments or being constrained by cash shortages, you gain immediate access to funds to reinvest in growth or seize new opportunities.
Best of all, cash flow lending grows with your business. As your revenue increases, your borrowing capacity can expand, giving you the flexibility to scale without unnecessary limits.
Don’t let predictable revenue sit untapped. Use cash flow lending to keep your business agile and moving forward.
Industries That Benefit From Cash Flow Lending
Industries That Benefit From Cash Flow Lending
Here’s how cash flow lending solutions help businesses across these industries overcome funding gaps and maintain financial stability.
Freight Bill & Trucking Factoring
Staffing, Labor & Payroll Factoring
Manufacturing Financing
Agriculture & Food Production Factoring
Technology & IT Financing
Oil & Gas Financing
Which Model Fits Your Business Needs?
Both cash flow lending and asset-based lending (ABL) provide fast access to working capital, but they differ in flexibility, risk, and how they determine borrowing capacity.
Cash Flow Lending
Asset-Based Lending (ABL)
Cash flow lending allows businesses to access a revolving line of credit or term loan based primarily on predictable revenue or recurring cash flow. Funding is based on your business’s ability to generate income rather than relying on physical assets or collateral.
Benefits of Cash Flow Lending
Some key features include:
- Fast access to working capital without waiting for payments or relying on assets.
- Approval is based on predictable revenue or recurring cash flow, not physical collateral.
- Flexible repayment schedules that adjust as revenue is collected.
Ideal for businesses with steady, recurring income that need short-term liquidity.
Common Risks Associated With Cash Flow Lending
Despite its benefits, business loans based on cash flow also has challenges:
- Interest rates may be higher than asset-backed financing.
- Lenders evaluate overall revenue consistency, so volatile income may limit borrowing capacity.
- Over-reliance on cash flow lending can create dependency if revenue slows unexpectedly.
- Lines may be reduced or frozen if revenue projections are not met.
Asset-based lending is a revolving line of credit secured by your company’s assets, such as accounts receivable, inventory, or equipment. Unlike cash flow lending, ABL uses the value of these assets to determine your borrowing capacity.
Benefits of Asset-Based Lending
Some key advantages include:
- Provides flexible, ongoing access to capital as your assets grow.
- Typically offers lower financing costs than cash flow based loans.
- Keep customer relationships private since collections remain under your control.
- Allows borrowing against a broad range of assets, not just revenue.
Common Risks Associated With Asset-Based Lending
While ABL offers flexibility, it also has challenges:
- Requires strong internal financial reporting and frequent collateral audits.
- Approval is stricter, focusing on asset quality and business financial stability.
- Borrowing capacity fluctuates based on the value of pledged assets.
- Failure to maintain collateral value can reduce available credit or trigger repayment.
Leverage Future Income for Funding Today
Traditional financing can be slow and limiting. Cash flow loans from Business Factors & Finance give you fast, flexible funding based on your revenue stream, without unnecessary delays.
Connect with our team today and discover how to turn predictable cash flow into opportunity.
FAQs
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Is cash flow lending a loan?
Yes. Cash flow lending is a type of financing that provides access to working capital based primarily on your business’s predictable revenue or recurring cash flow, rather than physical assets or collateral.
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What happens if my business can’t repay the loan?
Repayment is typically structured around your revenue streams. If payments are missed, lenders may adjust terms or temporarily reduce your available credit, but they generally do not take physical assets since the loan is unsecured.
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Will using cash flow lending make my business look financially unstable?
Not at all. Many growing businesses use cash flow based loans to maintain smooth operations, manage payroll, and fund growth without adding traditional debt. It’s considered a smart and flexible financing tool.