Cash Flow Lending Basics

Find cash flow funding collateralized by existing business income

If your company has a healthy fiscal income statement but has heavy short-term cash flow requirements, e.g. due to cyclic business swings, seasonal fluctuations or for a business expansion, it can seek cash flow financing to meet it's short-term capital requirements. You might need a cash flow loan simply for working capital and growth. Or, if you're planning to undertake a business acquisition or a merger or buyout, the cash flow requirements can be pretty enormous and you should start looking at cash flow lending solutions that are available.

Recapitalizing your debt and equity mixture in an effort to stabilize your company's capital structure is another reason you might need cash flow lending. Another expensive restructuring action that might call for a cash flow loan is streamlining your operation by spinning off unrelated or less productive subsidiaries of your business into independent entities. If you're considering pursuing a cash flow loan, use the following as a guide to cash flow lending basics:

1. Obtain a basic understanding of what cash flow lending is all about.

2. Locate commercial cash flow lending companies to get you the funding you need.

3. Get more in-depth knowledge about cash flow funding through formal training.

 

Understand how a cash flow based loan works

Cash flow financing is a type of debt financing. A fiscally sound company has an isolated need for a large amount of capital, so a bank lends it money against the positive cash flow of the company. This differs from an asset-based loan, which collateralizes assets like real estate to secure the loan.
Try: The Minority Business Development Agency's (MBDA) website offers explanations of many business-related terms, including cash flow financing. PubCoWhitePapers provides a corporate insider's handbook online that provides complete instructional information about cash flow lending.

Understand commercial cash flow lending

There are a handful of commercial cash flow lenders in the United States, though it's very common in Australia and New Zealand. Providers of cash flow loans base their evaluation of the borrower's ability to repay the loan based on one of a number of EBITDA formulas. EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization.
Try: Danversbank is a lender that will provide commercial cash flow lending services of up to $20 million to businesses in Maine, New Hampshire and Rhode Island. For larger loans, they are able to partner with other banks. Cash flow lender CIT is expanding it's commercial cash flow lending with a focus on companies with an EBITDA of $10 million or greater. They are also willing to hold up to $20 million of debt on their balance sheet, either as a sole investor or part of a larger deal.

Learn all about cash flow funding and all facets of finance through formal training

Whether you are a lender, a broker or a borrower it certainly pays to have a full understanding of what's happening when you're involved in a multi-million dollar financing transaction. In just a few days, you can gain an in-depth knowledge of how cash flow lending works and what does and doesn't make sense for a lender when a borrower asks for $20 million and doesn't have assets to put up as collateral.
Try: Infrastructure Development provides a 19-module training course called the "Project Finance Course," which specifically focuses on teaching cash flow lending. The New York Institute of Finance offers a five-day credit risk analysis training course, which includes the topic of cash flow lending.

 

• Your business may have cash flows you hadn't thought of that could be used to collateralize a cash flow loan, like business notes, equipment leasing, medical or business receivables, or equipment sales or leasebacks just to name a few.

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