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What to Know About Cash Flow Lending


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As a small business owner looking for financing options, you may have heard of cash flow lending, but you might also still be uncertain if it’s the right choice for you or your business.

Broadly speaking, cash flow lending is a type of loan that is based on your historical and future cash flows. This makes cash flow loans a good option if you are a business that does not yet have many assets, or have a lower credit score, or are in need of financing quickly.

You may also find that these financing options can either be secured or unsecured loans depending on which financial institution you end up working with.



While some cash flow lenders base approvals on your historical and future cash flows, others may place more emphasis on historical cash flow.


To help you make an informed decision on whether cash flow lending is a fit for you, we’ll go over:

  • What cash flow lending is
  • How it works
  • Differences between cash flow lending and asset-based lending
  • How to qualify for cash flow lending


Cash Flow Explained

Let’s first understand the basics behind cash flow, as it’s one of the most important aspects of a business’s financial health. Whenever customers pay for goods and services, cash flows into your company. Conversely, when you pay suppliers for inventory or pay bills, cash flows out.

In this way, having a positive cash flow is a good indicator to lenders because it represents more cash flowing into your business and therefore a better likelihood of you paying your loans back.

Having a negative cash flow isn’t necessarily a bad signal to lenders if, for example, you are investing in things that will grow your business like hiring more employees or running marketing campaigns.

However, the balance lies in not spending to the point where expenses become unmanageable and you become unable to show lenders that you are capable of sustainable growth.


Cash Flow Lending


What Is Cash Flow Lending?

Now that we have an understanding of what cash flow is, let’s get into cash-flow-based lending.

Small businesses looking for cash flow loans typically seek quick access to cash without always having to provide collateral or having a potentially low credit score stand in the way. Cash flow lenders may also offer flexible repayment plans tailored to fit the needs of certain companies or industries.

Unlike traditional bank loans that may place more emphasis on your credit history or may review your entire financial track record more extensively, cash flow lenders look mostly for your ability to generate revenue and manage expenses.

Cash-flow-based loans are typically faster to obtain than other forms of financing. You can receive funding in as few as 24 to 48 hours, as opposed to traditional bank loans that can take up to several weeks or longer.

Cash flow loans should be thought of as short-term loans, which means that:

  1. Financing amounts tend to be smaller because they are intended to cover short-term working capital needs.
  2. Approval time is faster because there are less intensive requirements needed for short-term loans.
  3. Interest rates may be higher as a trade-off because of the more flexible requirements and faster time to acquire the funds.

Cash flow loans are best used to cover everyday expenses, also known as working capital, that are necessary for keeping your business running. For example, you can use cash flow loans for more inventory, payroll, bills, and rent.

However, these loans can also be useful to help with unforeseen situations that arise, like needing a way to fulfill financial obligations during seasonal slowdowns.

As such, these loans are a good fit for business owners who need immediate financial assistance in order to keep their businesses running.


How Cash Flow Lending Works

Cash flow lending allows you to take out a loan based on the revenue you will receive in the future.

In order for lenders to determine whether or not you will be approved and how much you will be approved for, they must first take a look at your historical and projected cash flows. They may also take a look at your credit, but there is less of an emphasis on having perfect credit.


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In fact, you’ll find that cash flow lending is often a suitable alternative for business owners with less-than-perfect credit who need financing quickly.

The timeframe to get both an approval and actual funds from cash-flow-based business loans is significantly faster than if you were to apply for other forms of financing like a traditional bank loan or a long-term loan.

The funding process from application to approval to receiving funds can be as fast as the same day or 2-3 business days. This differs from long-term loans or other types of more involved financing that can take weeks or even months.

Because cash flow loans are considered short-term loans, the typical term you can expect is anywhere from 6 months to 2 years, and the typical funding amount ranges from $5,000 to $400,000.


The Difference Between Cash Flow Lending and Asset-Based Lending

As their names suggest, asset based lending vs cash flow lending are based on either a business’s cash flows or their assets. Let’s take a look at the main differences between the two.

With cash flow lending, your historical and future cash flows are the single most important factor when it comes to a lender deciding whether or not they can approve you for a loan. While they may look at your credit history, having perfect credit does not play as big a part in the approval process like other financing options.

You also do not have to offer up any of your assets as collateral, which is a benefit if you are a business that does not have many fixed assets.

Asset-based lending, on the other hand, takes a look at whether or not a business has enough assets to serve as security for a loan.

Unlike cash flow loans, asset-based loans do not require a strong cash flow in order to obtain funds. Instead, you can get an asset-based loan if you have assets that can be used as collateral. Examples of assets can be found on a business’s balance sheet like inventory, real estate, accounts receivable, machines, equipment, furniture, and more.


While you can use personal assets as collateral for asset-based loans, it isn’t advised. If you default on the loan, the lender can seize your personal assets.If you put up personal assets like your home or personal bank accounts as collateral, they could be at risk in those situations. From a risk perspective, it may be more prudent to put up business assets like machines or inventory as collateral.


You may be curious about their similarities. Both cash flow and asset-based lending are meant to help businesses with short-term financing gaps. They are both more flexible forms of financing in terms of what is necessary to get approved for a loan and how quickly you can get funds. Depending on your unique business, either could be an option to fulfill business financing needs.


What Is Cash Flow Lending


How to Qualify for Cash Flow Lending

Requirements to qualify for cash flow lending can vary from lender to lender. For example, some cash flow lending banks may require collateral in order to approve you for a loan, others may not. In general, you can expect to provide proof of the following when trying to qualify for cash flow loans:

  • Having been in business for at least 6 months
  • Having a business bank account
  • Having a minimum credit score of 550
  • Having a minimum average monthly deposit of $15K

There may be further, more specific qualifications as you proceed through the funding process, but most lenders will require the above as a start. For example, Credibly has favorable and flexible requirements for business owners seeing cash flow lending. If you meet the above, we may be able to connect you with the financing you need.


The Power of Cash Flow Lending With Credibly

Whether you’re looking at cash flow loans, merchant cash advances, or other types of business financing, our financing experts can walk you through the options that are the best fit for you.



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