Best Business Cash Flow Loans
Business cash flow loans can cover all kinds of expenses, from buying inventory to fulfilling payroll.
Best business cash flow loans: More details
What is a business cash flow loan?
Cash flow loans for businesses provide a quick source of cash to help businesses cover all kinds of short-term financial needs.
These small business loans can be helpful for businesses experiencing temporary interruptions in revenue. This may be the result of seasonal slowdowns, having money tied up in outstanding invoices or anything else that prevents expected revenue from coming in.
Types of cash flow loans and how they work
Business cash flow loans come in several shapes and sizes, and the way they work depends on how the loan is structured.
Term loans
Short-term business loans, which are largely provided by online lenders, can help business owners get through all sorts of cash flow issues — from weathering an emergency business expense to managing regular operational costs.
With a term loan, you’ll receive your funds as a lump sum. Repayment periods typically last anywhere from three to 24 months, with payments made daily or weekly. Once approved, businesses can expect funds to be deposited into their bank accounts within just a few days.
Lines of credit
Business lines of credit work a little differently than loans. Instead of receiving a lump sum of cash upfront, a credit line allows the business to withdraw funds on an as-needed basis. Businesses can use those funds for all kinds of expenses, including those related to short-term cash flow issues.
The business owner can borrow up to their credit limit, and will only owe interest on the amount owed. Once the balance is paid down, the credit limit typically replenishes, making this a good option for businesses looking to borrow money regularly.
Invoice factoring
If your business has cash-flow issues because of unpaid invoices, invoice factoring could be a good way to access capital. Invoice factoring involves selling a batch of outstanding invoices to a factoring company in exchange for a cash advance.
This amount is generally equal to 70% to 90% of the value of the invoices. Once your customer pays the factoring company, you’ll receive the remainder of the invoice minus any applicable fees. Just keep in mind that your customers will be notified of the arrangement, which might suggest that your business is having money problems. Similarly, some customers may not be keen on making payments to a third party.
Merchant cash advance
A merchant cash advance allows you to borrow against your future debit or credit card sales to receive a cash advance. In exchange, the lender receives a percentage of your future sales until your debt is repaid.
This percentage is called the holdback rate, and it can range from 5% to 20%, depending on the lender. Some lenders partner with credit card processors to automatically deduct this fee from your transactions, while others withdraw the funds from a linked business’s bank account. Additional rates and fees may apply.
Business bridge loans
Commercial bridge loans are a form of short-term funding commonly used to close on commercial real estate transactions, but these loans can also be used to buy inventory or complete a business acquisition.
Repayment terms are usually short, and interest rates may be higher when compared to other business loans. This type of cash flow loan typically requires collateral, usually in the form of real estate.
How to get a cash flow loan
If a cash flow loan sounds right for your business, the next step is finding a lender and applying.
1. Determine your funding needs
Begin by evaluating why you need funding in the first place. Is it due to something you expect to pass relatively quickly, like a slow sales season? Determine if this is a short-term financial hiccup or a larger, long-term cash flow problem. Cash flow loans are typically used for short-term problems, and aren’t a good solution for a long-term problem.
2. Figure out how much you need to borrow
If you do decide to move forward with a cash flow loan, evaluate both how much money you need and how much you can afford to repay when determining how much to borrow.
3. Evaluate your borrowing eligibility
Once you’re clear on how much capital your business needs, you’ll need to determine whether you meet the loan requirements for a cash flow loan. Eligibility requirements vary from lender to lender, but you’ll likely need to demonstrate steady monthly revenue.
Lenders that provide business cash flow loans typically look at revenue to assess the business’ ability to repay the loan. There are also requirements in place for time in business and minimum credit score, though these requirements also vary. With that said, business owners who have strong credit and have been operating for a while may have an advantage.
4. Compare lenders
The next step is to see which lenders can meet your needs — and then compare their business cash flow loans. Be sure to consider the loan type that is best suited for your needs.
For example, if your business revenue fluctuates throughout the year, a merchant cash advance might be a good choice — as opposed to set payments, you’ll repay your advance through a percentage of your ongoing sales. On the other hand, if you prefer predictable, fixed loan payments, a term loan might be your best option.
5. Apply
Once you’ve found the cash flow loan that best suits your needs, it’s time to apply. You can typically apply for a business loan online, though some lenders may prefer to discuss your loan options over the phone.
Cash flow loans are designed to provide fast funding, so the approval process should be relatively quick. You may be able to expedite this process by providing all the necessary documentation upfront. Depending on the loan type, this might include bank statements, tax returns, proof of account receivables or additional details on collateral.
How to compare business cash flow loans
To pick the best cash flow loan for your needs, compare the following loan details:
- Interest rates: Business loan interest rates vary by lender and by loan type. If the lender charges a factor rate, it’s worth converting it to compare against other loan offers. Keep in mind that most borrowers won’t qualify for the lowest advertised rate, so you may need to apply to get a quote. Shopping around for the best rate can help you save money over the lifetime of the loan.
- Loan fees: Some lenders charge fees in addition to interest. Watch out for origination, late payment, prepayment and other types of fees, as these can add to the total cost of borrowing.
- Repayment terms: Terms for business cash flow loans can range from a few months to a few years. Repayment terms impact more than the amount of time you have to repay your debt — they also impact the amount of interest you’ll end up paying. Depending on the lender, you may be required to make daily, weekly or monthly loan payments.
- Funding speed: Some lenders offer fast funding within 24 hours, while others take several days to issue funds. Keep in mind that while many lenders advertise same-day business loans, this is often a best case scenario and not all borrowers can qualify for the fastest funding speed.
Pros and cons of cash flow loans
Pros
- Quick funding times
- Options for new and established businesses
- Borrowers with poor credit may be able to qualify
Cons
- Typically requires a steady stream of monthly revenue
- Interest rates and fee structures can vary from lender to lender
- If the business doesn’t get to the source of its cash flow problems, these loans could create a repeating debt cycle
Alternatives to cash flow loans
Business cash flow loans are a great option for short-term needs — but if you’re looking for more long-term funding to help your business scale or expand, consider these options:
SBA loans
Guaranteed by the U.S. Small Business Administration, SBA loans are known for their low interest rates and generous repayment terms. However, both the eligibility requirements and application process are more rigorous when compared to term loans from online lenders. It isn’t uncommon for it to take two months or longer; as such, SBA loans aren’t ideal for short-term capital needs. Established businesses with long-term needs are generally better suited.
Long-term loans
As the name implies, long-term business loans have long repayment terms, usually to the tune of five years or more. They also tend to offer higher loan amounts, which makes them especially appealing to small businesses that are looking to grow and expand. Eligibility requirements are typically more rigorous when compared to short-term cash flow loans.
Equipment loans
These loans are designed to help businesses purchase, replace or upgrade vital equipment. This can include items such as vehicles, technology, commercial-grade office equipment and more. The equipment that’s being financed serves as collateral, though some lenders may require a down payment. Equipment loans can make sense for businesses that need to purchase essential machinery.
Commercial real estate loans
Businesses that are looking to purchase land or a physical storefront might consider a commercial real estate loan. They can be used to finance new property (including new construction) or renovate existing property. It’s a commercial mortgage that’s ideal for creditworthy businesses that want a long repayment term.
Our methodology: How we chose the best business cash flow loans
We reviewed more than 20 lenders to determine the overall best business cash flow loans. To make our list, lenders had to meet the following criteria:
- Eligibility requirements: To include financing options for different types of businesses, we included lenders with a wide range of credit score, time in business and annual revenue requirements.
- Time to funding: We know cash flow issues can interrupt the regular flow of business operations, so we prioritized lenders with funding times within one to three days.
- Rates and terms: We prioritized lenders with more competitive fixed rates, fewer fees and greater options for repayment terms, loan amounts and APR discounts.
- Repayment experience: We considered each lender’s reputation and business practices, favoring lenders that report to all major credit bureaus, offer reliable customer service and provide unique perks to customers, like free wealth coaching.
Best business cash flow loans summary
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