Cash Flow Loans
With cash flow loans a lender provides you funds and accepts your expected future cash flow as collateral for the loan. You’re essentially borrowing from cash that you expect to receive in the future, and giving the lender the rights to a predetermined amount of these receivables. These loans are primarily used for working capital or take advantage of short-term ROI opportunities. Your credit scores will usually be checked, but they play less of a role than with other loans. After you apply, the lender will inspect your account’s cash flow and make a quick (if not instant) decision on whether or not to offer you a loan, and at what interest rate.
While turnaround time is fast, interest rates on these loans are higher than for other forms of financing. Since cash flow loans aren’t extended based on information beyond your account history, and don’t require collateral (though they do require a personal guarantee in most cases), they are inherently riskier loans for lenders, who offset this risk by charging high interest rates. Some online-only marketplace lenders provide cash flow loans.
You should also be aware that many cash flow lenders also charge a very steep prepayment penalty. This means that paying back the loan early doesn’t help you because the payback amount is fixed. They don’t use an APR or amortization.
- Fast access to money (usually within a week)
- Poor credit scores may be ok
- Less documentation needed
- No physical collateral required
- Can improve your credit score
- High interest rates (20-90%)
- Lender has direct access to bank account
- May have pre-payment penalty
- Typically requires 2 years of business history