Cash flow loans help pay for company everyday expenses such as payroll, inventory purchases, or new project financing. The cash loans include purchase order financing to installment loans and asset-based lending. The loans come secure with collateral as most lenders consider the repayment risk, which they are usually unwilling to take. The collateral includes valuables from the company’s current assets such as inventory and equipment and other hard assets and real estate. Business Factors & Finance knows the importance of a business to ensure that the loan guarantees equate to the amount provided to prevent them from getting duped or short-changed. There are several alternatives to cash flow loans, including revolving lines of credit and cash flow factoring, the sale of accounts receivable to a third party like a factoring company or bank. Also, a merchant cash advance could get used by a business to finance its cash.
Revolving lines of credit
A revolving line of credit enables a business to draw on it multiple times, differentiating it from a loan. The cash flow gets secured by assets like inventory or account receivable. It can be a borrowing base subject that falls is the maximum amount that a business can borrow based on the value of the assets, and the terms of credit vary by lender. The cash flow factoring loan option can be committed where the lender makes the entire line available to the borrower with certain conditions to get met. On the other hand, an uncommitted revolving line of credit doesn’t require the lender to have an obligation to extend credit and gets done over a short-term basis, such as when the business requires to meet urgent expenses that include payroll and lacks enough cash flow to fulfill the needs. On the downside, the facilities can get quite expensive, especially when they require no collateral. Its advantage is that the interest gets paid only on the borrowed portion; however, the lender may charge a fee on the unused line portion.
Merchant cash advance (MCA)
An MCA is an advance against future debit and credit card sales that gets repaid using a percentage of the sales. The cash flow factoring repayment mechanism allows a business to manage its cash flow better since the amount taken out fluctuates the sales. The MCAs come expensive compared to cash loans because they don’t get subjected to the same regulations as revolving lines of credit. The MCAs get factored using a factor rate that is a multiplier that indicates the repayment amount. The cash loans are fast to obtain. The providers must consider credit card receipts to evaluate a business’s capacity for repayment and have the reservation to ask for collateral. In addition, someplace restrictions on the use of advances proceed with collateral like business and personal assets. To get an MCA, they need a minimum revenue amount that could be as low as $50,000, a minimum of credit and debit receivables, and a minimum time in the business of twelve to twenty-four months.