All businesses require capital to operate, and at some point, you will probably have to borrow in order to get the capital you need. Startup entrepreneurs often need money to get their business off the ground; established companies require cash for business acquisitions, expansion, inventory and other purposes.
Whether you need working capital to expand your business or monies to acquire a competitor, cash flow lending is an option you should not overlook. With more than 25 years of combined experience, the financial advisors at Links Financial provide solid guidance and financially sound recommendations regarding business cash flow loans.
What is Cash Flow Lending?
In cash flow lending, a lender loans money based on the cash flow of the business. If you need the loan to fund operating expenses for growth, the loan is based on the cash flow of your business. If the loan is used to purchase another business, the loan is based on the cash flow of the company you are buying plus your company’s cash flow.
This type of lending does not use tangible assets such as receivables or property as collateral; rather, it is based on things like a client list and intellectual property of the business. Because no hard assets back up this type of lending, these cash finance loans are often called air-ball loans and are tougher to find.
Cash flow lenders will lend a multiple of a business’ cash flow. For example, if you buy a business with a $1 million cash flow and that business is being sold for $5 million, cash flow lenders will typically let you borrow $3 million and you would have to provide the additional $2 million.
Related topic: Business M&A
Do Business Cash Flow Loans Fit Your Business?
Because cash financing is based on the idea that the cash flow of a company will pay its debt, certainty (regularity) of cash flow and profit matter a lot to cash flow lenders. These lenders want the assurance of a recurring revenue stream, so volatile companies or industries would not be a good fit for this type of loan.
If your business, or the business you are buying, has a reliable revenue stream or just lacks hard assets that lenders can use for collateral, business cash flow loans are an attractive option. Lenders do not require perfect credit for these loans and providing the best structure will produce the best outcome. Interest rates are typically higher on these loans compared to traditional loans. You can pay back these loans as a percentage of cash flow through monthly fixed payments over time.
Links Financial: The Experience You Need
There is no doubt that it can be tough for small- and mid-sized businesses to acquire capital through cash flow funding. The expert advisers at Links Financial have the knowledge and experience to try to ease your concerns and help you get the cash financing you need. Through our in-depth network of financial relationships, you can access lending sources not otherwise available. Contact Links Financial today to discuss cash flow lending as a financing option.